In the Fundamental Growth model, manager Sparrow Capital looks for companies with a proven ability to grow their sales as well as cash flows, earnings and book values over different economic cycles. In order to find the right kinds of companies, the fund’s managers review annual and quarterly reports.
The top position in the model is Genesee & Wyoming Inc (NYSE: GWR), a short line and regional freight railroad operator in the U.S., Canada and elsewhere. GWR currently owns and leases a total of 6,000 miles of track and has 62 railroads over nine different regions. In 2008, the company’s sales reached $602 million, but dropped to $544.9 million in 2009. Their quarterly sales have risen steadily every quarter since quarter 3 of 2009, and their quarter two 2010 financial results showed that their net income of $20.6 million during the second quarter of 2010 had greatly exceeded their $7.4 million net income during the second quarter of 2009. Their earnings per share also increased from $0.20 in quarter two 2009 to $0.49 in quarter two 2010.
The next largest position in the model is Altria Group Inc (NYSE: MO). Altria group is the parent company of Philip Morris International Inc (NYSE: PM)—which happens to also be one of this model’s top holdings. In addition to Philip Morris, Altria also owns UST Inc, which is a holding company that produces smokeless tobacco products and premium wines. While MO’s earnings have grown since 2007, their sales have decreased. In 2007, the company had $38.1 billion in sales. In 2008, it dropped to $19.4 billion and in 2009 down to $16.8 billion. The company’s second quarter 2010 financial results mentioned a 2 percent increase in earnings per share for the first half of 2010 over the first half of 2009. It also showed some success in its cost savings initiative.
