The Ukraine war is no doubt hurting your portfolio. Yet one of the best mutual funds owns stocks poised to thrive because they defend us from war. They do that because they are actually plays on the growth and security of U.S. infrastructure. As a result, holdings like those or the fund itself can soothe your retirement planning and overall savings.
No right-minded person likes geopolitical tensions or wars like the one in Ukraine. But in an often ugly world, a number of stocks owned by $147.6 million Needham Aggressive Growth Fund (NEAGX) should shine because they are plays on U.S. strategic needs. "The geopolitical tensions and Covid-19 have shown the importance of shorter supply chains and the need for manufacturing in the U.S.," Barr said.
He added, "We invest primarily in companies providing tools and equipment and capital goods toward technology infrastructure, communications infastructure and to a lesser degree physical infrastructure. Examples are 5G communications. And a big one is data centers."
Not that Aggressive Growth is a narrow fund specializing in defense contractors. It is diversified. And fund manager John Barr says his strategy takes time to pay off.
Ukraine War Drives Some Stocks
One of the traits Barr seeks in a stock is a catalyst. "The company may be investing in something like a new product or service or market. It's not showing big or any returns yet. I want to look beyond today's flat revenue or boring look or flat stock chart."
These days, the Ukraine war and geopolitical friction in general provide some of those catalysts.
Barr's portfolio also has plenty of names with no direct tie-in to war in Ukraine. Among those are Apple, entertainment company World Wrestling Entertainment and cell-tower owner American Tower, a giant in communications infrastructure.
But Barr also owns stocks that are plays on geopolitical tensions in general and the Ukraine war in particular, even if they weren't made because of the war.
Those macro factors are speeding demand for goods and services offered by Parsons, Barr says.
One of Parsons' divisions provides security engineering and construction for the Air Force and additional U.S. military installations. "On the security side, it goes from designing and building defenses against 'Lone Rangers' (individual would-be intruders) trying to break through the perimeter of an air base in Africa or Europe to designing and building defenses against hypersonic missile attacks," Barr said.
A second division caters to U.S. airports and operators of infrastructure facilities. "This business is engineering and construction for critical infrastructure," Barr said. "They had some delivery issues because of Covid-19 last year. This is an under-the-radar U.S. defense and construction company."
Barr added, "Basically, Parsons is at the sweet spot of all U.S. national security challenges. They're in the sweet spot of geopolitical shifts."
Earnings per share for Parsons are seen rising 12% this year, according to MarketSmith analysis. The stock's price was up 6.6% so far this year, going into Wednesday, vs. a 12.26% decline by the S&P 500.
Cleaning Up With Clean Harbors?
Can Clean Harbors, an infrastructure play, help Needham Aggressive Growth stay among the best mutual funds?
Barr calls Clean Harbors the largest hazardous waste disposal company in the U.S. Its share price is up 1.23% so far this year.
One driver for the stock is its ownership of something businesses crave. It has a competitive moat in the form of permits to operate waste disposal facilities. And new permits are generally very hard to acquire. "They have nine of 13 incinerators that are permitted to operate in the U.S.," Barr said. "They have nine landfill sites. They have solvent recycling facilities, wastewater treatment and treatment disposal and storage facilities. They have permits to operate about 500 of them. But no one wants these things in their backyard. So it's very difficult to replicate any of this," Barr said.
In addition, Clean Harbors has leverage from the Ukraine war. Oil and other energy prices have climbed on supply uncertainty. The U.S. has banned Russian oil imports. "Clean Harbors is the leading oil collection and re-refined oil processing company," Barr said.
Clean Harbors collects used motor oil from service stations and other facilities. Clean Harbors takes it to refineries, where it is reprocessed into aviation fuel and other products. Then Clean Harbors sells it. "Its value is not far from oil's price on the open market," Barr said. "If current oil prices stick, this is an absolute home run for Clean Harbors."
Ukraine And Chip Supplies
Ukraine and overall global tensions have added urgency to the push to boost domestic manufacturing of semiconductors, Barr says. Anything that prompts creation of more computer-chip making and infrastructure in the U.S. should benefit companies that make chips and chip stocks. Likewise, it should benefit companies that make equipment used in chip manufacturing.
So, that should help Aggressive Growth Fund holdings like PDF Solutions.
PDF Solutions' software and hardware analyze what goes on in the manufacturing of computer chips. That helps manufacturers improve their chip-making processes. "They're a big data analytics firm that enables semiconductor manufacturers to improve their yield," Barr said. "Their customers include major manufacturers, equipment companies and fabless design companies. They know more about ramping up a semiconductor manufacturing facility than anybody in the world."
The drive to increase U.S. self-sufficiency in chipmaking should also help holdings Nova and Entegris. "PDF, Nova and Entegris supply technology and equipment for semiconductor manufacturing," Barr said. "As the U.S. moves to build out semiconductor manufacturing, all three (PDF solutions, Nova and Entegris) will participate."
Likewise, creating secure and possibly even extra data centers is important to U.S. strategic security. Barr acquired Vertiv Holdings in the fourth quarter. "Vertiv supplies mechanical systems used in data centers," Barr said. "Data centers are a critical part of U.S. infrastructure."
By The Numbers: One Of The Best Mutual Funds
Needham Aggressive Growth Fund's long-term outperformance predates the Ukraine war becoming an everyday headline. The fund ranks among the best mutual funds by virtue of notching a 37.54% total return in 2021 vs. 28.71% for the S&P 500. That capped its outperformance over the three, five and 10 years ended Dec. 31.
Still, holding stocks that are poised to do well — as well as provide noble services — is no guarantee of outperformance in the short run. So far this young year, the fund has lost 17.77% vs. -12.26% by the S&P 500 and -18.36 by the fund's small-cap growth rivals tracked by Morningstar Direct.
Follow Paul Katzeff on Twitter at @IBD_PKatzeff for tips about retirement planning and actively run portfolios that consistently outperform and rank among the best mutual funds.
