STRONG'S SMALL CAP VALUE FUND
The market might not look so hot this year, but that doesn't mean all mutual funds are performing poorly. Take the Strong Small Cap Value Fund, for instance. It's performing just fine, thank you.
If you think small-cap and value stocks are no place to be invested this year, don't talk to I. Charles Rinaldi, portfolio manager of the Strong Small Cap Value Fund, (800-359-3379). He loves the arena he invests that fund's assets into.
"Small stocks can be risky because they are illiquid to some degree and the sector has been out of favor recently," says Rinaldi. " But prior to recent years, the sector has been one of the best places to be. That's why I'm in it, because I like small-caps and I like value. Both have been out of vogue and we've one pretty well during this down period."
And he's right. As of June 7, the Russell 2000, an index that reflects the performance of small-cap stocks, was up 2.3 percent while the Strong Small Cap Value Fund had a year-to-date total return of over 17 percent, according to Lipper, Inc.
Rinaldi likes finding companies to invest in that others have overlooked. Currently there are about 90 stocks in the portfolio, highest industry weightings are energy and technology. Here is part of a recent conversation with Rinaldi:
Q:Everybody seems to have a different definition for "value". What's yours?
Rinaldi: We don't look at stocks and say this is a "growth" stock or a "value" stock. We look at the screens, and then for stocks selling at deep value and go from there. Basically use a strong bottom-up fundamental approach.
Q: Tell me a little bit more about your stock selections process?
Rinaldi: We screen our data base looking for stocks with market capitalizations between $200 million and $1.5 billion. Then, we look at things like sales growth, gross margins, capital expenditures and for some dynamic for change within a company. And then decide if the stock is selling at a price we consider to be a good entry point.
Q: Can you give me a couple of examples of such companies?
Rinaldi: About two years ago we bought Optika, a software company, for about $2.50. It was down from $11, had no debt and was selling below book value at the time.
What happened there was everybody had sold the stock, it really had no coverage and the company had announced that they had a major new product coming out. We looked at the product, thought there really was a good dynamic in the company for change and invested in it. The stock actually hit over $44.
Another one that was very good for us was Coherent, Inc. It's a tech stock that we bought at $13, and it went up to $107, and then back to $52. I liked the company because it was a real company with earnings. They are in the fiber optic area and also make high-end lasers. So the company has legs to it.
Q: But not all picks are winners. Any disappointments?
Rinaldi: One company that's attractive but really hasn't appreciated yet is Barbeques Galore. It's a specialty retailer, sells barbeque grills, sauces and a whole range of equipment and accessories. It's an Australian headquartered company, has 95 stores there and a real brand-name presence there. In the U.S., they have about 67 stores in states like California, Texas, and Arizona.
The stock went public two and a half years ago at $11. It's selling around $9.
Q: When you buy a stock, how long do you intend on holding it?
Rinaldi: When we go into a stock, unless the stock really appreciates very rapidly, we're talking about holding the stock for 2 or 3 years.
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