Apple at $500 and other predictions from a market bull

May 27, 2011: 5:54 AM ET
Investor Bob Turner isn't an index hugger. He's a market timer, a stock-picker, and he's betting on stocks growing.

FORTUNE -- Robert Turner is a market-timer. He might object to the description, but it's the investor's bread and butter. As lead manager two growth funds for Turner Investment Partners, he buys hot technology companies that play into multi-year trends. He loads up on cyclical industrial stocks during economic upswings, and he even dabbles in hotel stocks. Turner eschews, say, companies with low price-to-earnings ratio for those with hot earnings growth prospects. After all, his thinking goes, if a company's going to double its profits in a few years, why not pay a little more for the stock?

It's a high-stakes, hot-action style that investors seem to love. Assets at his eponymous company have grown from $100 million dollars in 1990 to more than $18 billion today.

At times the strategy has blown up in Turner's face. In 2008, his main fund dropped almost 50%, and back in 2001, his technology fund fell a stunning 70% following the tech bubble's burst. His losses tend to be worse than the market's in bad times, but his returns tend to beat the market in upswings. For instance, in 2009 his large cap growth fund returned 38% to the S&P 500's 26%. Likewise, in 2007 his fund rose 22% to the S&P's 5%.

This makes following his advice a test of timing as well for investors. If you think stocks are headed for another crash, as many market prognosticators do, don't bother reading any further. But if you believe the market prices can run-up longer -- like it has in almost every other secular bull market on record, according to researcher Laszlo Birinyi and others -- then decide if you have the stomach for a couple more potential speed bumps in the market. Then listen to Turner. He's made his investors a lot of money when he's gotten the timing right.

Below is an edited transcript of Turner's recent chat with Fortune.

In March 2010, you were telling people, don't worry about Apple (AAPL, Fortune 500), you should still buy the stock. Lo and behold....

I think Apple's the best risk-reward of any company now really. It's almost the one you can have the highest comfort level with saying the stock shouldn't go down very much, particularly with all this cash that they have. Then it's just amazing: they're able to grow their top line at some 20% year-over-year and grow the bottom-line at some 30%. So the big question is why is the stock trading at 10-times earnings?

That's what everybody's asking. So why is it?

I don't have the answer honestly. If there's anything, I would say it's like a digestive phase. They've had this extraordinary growth.

So there's a bit of a pause here. The iPad 2 is doing well. People are focused on the iPhone 5 coming in July or September or next year. So at some point, and I don't know when it's going to be, I think the stock will go from $350 to $450 just fairly quick. In a way it reprices. And the feeling is by 2013, they can earn $50 a share. At that point, they're going to have $100 per share in cash, and the stock should be $500.

Right now in the market, it seems everyone's doing that risk-off trade. They're going into defensives like health care. They're saying energy and tech are out. Do you buy it?

No. You know I think it's just -- people are going to get a head-fake here. Last year we had that big double-dip scare, and the same thing happened. But I think there's going to be sustainable economic growth, both globally and in the U.S. Not extraordinary but certainly stable. At some point you begin to get a positive feedback loop on the U.S. economy and more jobs. Of course, the challenge we're facing is you're getting 270,000 jobs per month created in the private sector, but then we're losing 30,000 a month in the public sector. But we have had this economic expansion 20 months or so now. Most economic expansions last about six years. So I think from that perspective, the companies that have a little bit more of a cyclical-growth profile are going to do better than those with defensive growth.

Qualcomm (QCOM, Fortune 500) is a behemoth that you own. Is it still a cyclical, growth company?

The thing with tech, we say we're in front of two major waves of tech investing. It happens every 10 years or so. Eleven years ago we had the dot-com bubble bursting. And now it's taken 10 years to kind of get back to a point people are spending again.

Certainly mobile computing is one driver. Everybody wants a computer in their hand, and currently, there are about 4.8 billion cellphones in the world. Half a billion of those are smartphones and ultimately they're all going to be smartphones. And then tablets, of course, are increasing tenfold from last year to this year off a small base of maybe 5 million last year to 50 to 60 million this year. You can play the chip companies, you can play the networking companies.

So the way you like it is through Qualcomm?

Qualcomm has the advantage that they're pretty much designed into every tablet and every smartphone. Another company that's done terrifically well is ARM Holdings (ARMH). Pretty much every one of those devices has a Qualcomm and an ARM-based chip in it.

Which industrials and cyclicals do you think can still do well?

We've had Caterpillar (CAT, Fortune 500) for a long time. Cummins (CMI, Fortune 500). If there's a common thread it's that these companies clearly are benefiting from emerging market growth. Caterpillar very directly with the mining. Cummins does the diesel engines but first of all, there's a little bit of a product cycle. These engines have to be more environmentally sound. So Cummins is benefiting from that.

Cummins has been in China earlier and more substantially than really any other industrial company, and they're benefiting from that also.

Ametek (AME) is another. It's a little Danaher (DHR, Fortune 500), if you will. Danaher has done real well over the years by making strategic acquisitions and kind of moving away from areas that aren't growing that rapidly and moving into areas that are more rapidly-growing. Ametek does the same thing, and they execute very well in doing that also. And it's about a $7 billion company. So it just has a little bit more growth potential being that size versus being a bigger company.

Okay. But underpinning that is your expectation that the economy is moving forward and upward? The march continues?

Yeah, plus as the weak dollar benefits these companies -- I mean the reason that S&P 500 earnings are probably going to be $100 a share this year and potentially could be $110, $115 next year is because of the weak dollar. So everybody bemoans the weak dollar, of course, but you don't see a company like Caterpillar and Cummins and Ametek fussing too much about the weak dollar because it's the best thing that's ever happened to them.

Short of a really severe economic slowdown, corporate profit growth is going to continue to be quite good. So I think that's kind of the unappreciated story -- how resilient corporations have been and how strong their profit growth has been. To top of page