Scoring with Dick's Sporting Goods

  @FortuneMagazine November 13, 2013: 9:51 AM ET
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(Fortune)

As co-manager of the $1.2 billion Hennessy Focus Fund since 2009, Ira Rothberg, 33, seeks a few undervalued companies he thinks can deliver long-term growth -- and then holds them for six to seven years. Rothberg was an analyst for his predecessor, Chuck Akre, back when the fund was called FBR Focus, and like Akre, he has produced stellar results: average annualized returns of 19.5% over the past three years, easily beating its peers. One stock that made the cut: Dick's Sporting Goods.

1. It's got growing profit margins

Dick's sales have been a bit sluggish of late, with the retailer's Golf Galaxy stores hit hardest by a weather-related slowdown. As a long-term investor, Rothberg says he "couldn't care less" about such blips. Between 2001 and 2012, Dick's added almost 400 new stores and quintupled revenues to $5.8 billion; it's now the nation's leading full-line sporting goods retailer. That means buying power. As a result, gross margins expanded from 24.5% in 2001 to 31.5% in 2012, and Rothberg expects continued improvement.

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