Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Searching for Pint-Size, Undiscovered Gems


A veteran of the micro caps offers his top picks.

Whether it's picking stocks or firing a rifle, Brian Bythrow is a deadly marksman.

Growing up in southwest Michigan, Bythrow discovered a skill for rifle shooting in high school. His talent attracted attention: the US Air Force Academy recruited him and, while there, the young shooter led the US Air Force International Rifle Shooting Team to several marksmanship records.

The years spent quietly taking aim at targets taught Bythrow skills he still uses today as a professional investor. "You have to be patient, unemotional, and disciplined," he tells us.

Bythrow, 42, now works as the portfolio manager of Wasatch Micro Cap Value Fund (WAMVX). The fund, with 110 holdings, invests in undervalued companies with a median market capitalization of $318 million.

Holdings, as Bythrow describes them, fall into one of four categories: Fallen Angel (growth company suffering a temporary setback), Value Momentum (cheap valuation but growth potential identified), Undiscovered Gem (attractive company yet to be discovered by Wall Street), and Hidden Value (assets or earnings potential not fully reflected in stock price).

The fund suffered a tough 2008 -- losing 47.2% -- but bounced back last year, and continues to shine with a solid long-term record. Through February 4, the fund's five-year total annualized return of 5.50% bests the Russell 2000, and leads its Morningstar rivals by 5.70 percentage points, landing in the top 2% of its category.

The five-star fund, with $168 million in assets, has an expense ratio of 2.26%, and requires a minimum investment of $2,000.

Recently, we caught up with Bythrow at his office in South Bend, Indiana, where we chatted about the outlook for pint-size companies as well as some of his top picks right now.

Explain the fund's investment process. What do you look for in a company?

Bythrow: I look for undiscovered growth, names with good growth potential, but which are underneath the radar screen. If I can find these names, before other analysts find them, I can buy them at modest to below average multiples. So I can pay a better price. If I'm right with my thesis, then other investors take notice, and they will buy the stock. I can capture the earnings growth of the company before expectations are built up.

Minyanville: What if you're wrong?

Bythrow: If I'm wrong, because there aren't a lot of expectations in the name, I don't usually get killed. I don't experience massive drops. The stock just doesn't go anywhere. I have found that to get those kinds of names I need to be in the micro cap arena.

Minyanville: You also like the Fallen Angels.

Bythrow: Right, we come across companies that we admire and we know. If they trip and miss earnings, and the stock gets killed, then we would buy the stock because we know they could stage a comeback.

Minyanville: What's an example of such a Fallen Angel you now own?

Bythrow: Sanmina-SCI (SANM) is a great one. They got upside down when Cisco (CSCO) and Hewlett-Packard (HPQ) all shifted to low-cost manufacturing in Asia. SANM had all their facilities in the US. The stock became a value trap. I called the CEO because I noticed he was buying stock, personally.
< Previous
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.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos