Assets: $7 billion
Year-to-date return: 6.5%
Midcap value average: -3.0%
What they like now: Avnet
The electronic-component distributor trades for just eight times normalized earnings, and Sertl applauds the company's $500 million stock buyback plan.
George Sertl and his co-managers run their fund with a simple but effective formula: Buy companies with strong returns on capital, trading at eight to 12 times their estimate of normalized earnings. And sell when that ratio reaches the mid-to-high teens. In 2010, foreseeing rough economic times ahead, they sold hot cyclical stocks to purchase out-of-favor but stable companies like tax giant H&R Block, to which they added as it fell from $22 to $11. It has since jumped 50%. A recent addition to the portfolio is Loews, the sprawling conglomerate whose holdings include cinemas and an oil driller. Sertl says it trades at a 30% discount to the value of its assets. Plus, it owns stakes in public subsidiaries that are undervalued. He's content to hold it for years. "We want to be paid well for the risk we take," says Sertl. They won't, however, take more money from investors than they think they can manage well. The fund has been closed since 2009.
Times are uncertain. Reliability and income matter more than ever. These undervalued names offer stability.
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