Alexion Pharmaceuticals (ALXN) is at the top of McHugh's list. The biotechnology firm's one product, Soliris, is treating more individuals who are being diagnosed with PNH, a rare and dangerous blood disorder. The company won't have to deal with competition for about seven years, since it has an orphan drug designation from the Food and Drug Administration, and it is gaining approval to expand internationally. Researchers are also studying other applications for the drug.

On the tech side, McHugh's excited about the "perfect storm" of dwindling competition, low cost and increasing demand that may bolster shares of Micron Technology (MU), a maker of computer components DRAM and NAND flash memory. "Micron is very attractive," McHugh says. "Pricing will be able to go in the right direction."

Gaming company WMS Industries (WMS) looks poised to run, McHugh says, since It has been gaining market share with its snazzy Star Trek and Wizard of Oz slot-machine games. Though the normal replacement rate for slot machines is down this year, WMS will gain that business when the market improves. To plug deficits, more states also will probably legalize gambling, McHugh speculates. "WMS is probably the best-positioned company in the gaming industry," he believes.

McHugh has been buying stock in high-end handbag maker Coach (COH) since the company has positioned itself well to profit in a weaker economy. Coach will soon introduce its Poppy line of lower-priced handbags, and its outlet stores are very profitable and starting to drive earnings.

McHugh also is making some bets on early beneficiaries of a cyclical recovery. "We're primarily bottom up, but we do take a macro viewpoint in each of our individual sectors," he explains. Some of McHugh's recent buys include home builders D.R. Horton (DHI) and Pulte Homes (PHM). The fund got rid of home builders in August 2006, McHugh says, but started accumulating shares again in the fourth quarter of 2008 and the first quarter of this year. "We're positioning the portfolio with some of those stocks that we feel can benefit from a recovery in the economic cycle," he says. "That's where we would put [Horton] and Pulte."

McHugh also is making some bets on early beneficiaries of a cyclical recovery. "We're primarily bottom up, but we do take a macro viewpoint in each of our individual sectors," he explains. Some of McHugh's recent buys include home builders D.R. Horton (DHI) and Pulte Homes (PHM). The fund got rid of home builders in August 2006, McHugh says, but started accumulating shares again in the fourth quarter of 2008 and the first quarter of this year. "We're positioning the portfolio with some of those stocks that we feel can benefit from a recovery in the economic cycle," he says. "That's where we would put [Horton] and Pulte."