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Finding Winners Where No One Else Will Go

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Inside a multi-cap value portfolio with stellar long-term results.

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Minyanville: When looking for bargains, how do you distinguish between trash and treasure? Sometimes a stock is cheap because it deserves to be.

Croft: Yes, that is one of the harder things to do. A lot of times the herd can be right. So it comes down to our own analysis.

A company could have a bad quarter but we know how hard it is for companies to manage, especially in this environment, quarter to quarter. Maybe a company misses by a couple pennies and the momentum guys bash the stock. That can be a good entry point for us.

So there is no cut-and-dry answer to your question. It comes down to us figuring out which companies are down for the wrong reasons. If it's a contrarian name, we might be nibbling at first and then building more over time.

Minyanville: Is there an example of one where you have been nibbling?

Croft: Well, this is no longer a glaring contrarian pick, but we do like Lowe's (LOW). The company has taken about three points of market share over the past couple years. The ma-and-pa stores are having trouble. Lowe's is taking advantage of it. You are getting a top-quality company at a depressed earnings level here. We think it will prove a good holding for the next three to five years.

Minyanville: You don't limit yourself by market capitalization. What is the advantage of such a go-anywhere approach?

Croft: We want to comb everywhere for ideas. We don't want to be shut out of any area. There are small-cap names that we like and that have performed well. If we couldn't dip below $1 billion then we never could own them.

Minyanville: Such as?

Croft: Petrobank Energy and Resources (TSE: PBG) is a small Canadian energy company we like. It has done very well. We bought in at around $3 and now it's at about $50. If we couldn't look at small-caps then we could never have gotten in there.

Minyanville: Let's talk about another pick you really like: Valmont Industries.

Croft: It's a mini-conglomerate. About a third of their earnings come from high-end irrigation systems. We think that's a great long-term business to be in. They also make utility towers. Here in the US, we need upgrades to our power grid. That's about 25% of their earnings. Finally, they make highway structures and lighting. Government spending in those areas should help Valmont. It's a $2 billion company that isn't on the radar of a lot of people.

Minyanville: Another significant holding in the portfolio is Foster Wheeler.

Croft: Right, we think there is a glaring need for global improvement to energy infrastructure. The company is a worldwide leader in that area. It's now trading at a reasonable 11.5 times 2010 earnings.

It is very hard to run this business quarter-to-quarter when you are dealing with $2 billion and $3 billion contracts. We want to see their backlog keep growing year-over-year, and it has come back a good amount.

Also, they have a very good management team. The CEO [Raymond Milchovich] was going to retire, but he instead signed a new contract. We like the fact that he is sticking around in these tough times.
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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