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Stock swoon: A ‘selective’ buying opportunity?

The stock market's slide in the last two weeks is being embraced as a “selective” buying opportunity by Melissa Chadwick-Dunn, part of the four-person team managing the RS Small Cap Growth Fund Ticker:(RSEGX).

The stock market’s slide in the last two weeks is being embraced as a “selective” buying opportunity by Melissa Chadwick-Dunn, part of the four-person team managing the RS Small Cap Growth Fund Ticker:(RSEGX).
“We’re looking at the pullback as a chance to add to some of the better stocks,” said Ms. Chadwick-Dunn, who manages the fund along with Allison Thacker, Steve Bishop and Scott Tracy.
The $600 million fund separates the market of smaller companies into three main categories.
The “promising” category, which can represent up to 10% of the portfolio, will include younger and sometimes unprofitable companies.
The “developing” category, which could be between 30% and 50% of the portfolio, is represented by companies that have established a competitive advantage and have better earnings, but are still early in the growth cycle.
The “proven” category, which tends to represent between 50% and 70% of the portfolio, is made up of the larger companies that have demonstrated a competitive advantage and strong balance sheet margins.
“Right now we’re whittling down some of our promising names and adding to the proven companies,” Ms. Chadwick-Dunn said. “You have to be selective.”
A recent favorite in the portfolio is technology, and holdings include The Ultimate Software Group Inc. Ticker:(ULTI).
The developer of software for human resources departments is on track to double its revenues and operating margins over the next three to four years, according to Ms. Chadwick-Dunn.
While the share price has fallen along with the market over the past few weeks, it is still up 13.2% from the start of the year.
Over the same period, the S&P 500 is flat, and the fund is up 4.6%.
Another example of a company found in the portfolio is Ultra Salon, Cosmetics & Fragrance Inc. Ticker:(ULTA).
This boutique retailer is gaining share by going directly after the cosmetic departments at the large chain department stores.
According to Ms. Chadwick-Dunn, the Ultra Salon company is expected to grow from 400 stores today to about 1,000 stores over the next few years.
The stock is up 82.6% from the start of the year.

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