(FORTUNE Magazine) – Anthony Gray bought his first stock in college -- 20 shares of United Fruit Co. Three months later Fidel Castro seized the company's Cuban plantations, and the price fell by half. But the Omaha lad, now 48 and head of investment management for Sun Bank in Orlando, Florida, waited out the market and sold two years later at a 10% profit -- the first of many. Over the last ten years, Gray's single largest fund -- with $383 million in assets -- has achieved a total return of 691%, vs. 352% for the S&P 500. That puts it in the top percentile of all pension funds tracked by SEI, an investment consultant in Wayne, Pennsylvania. In a recent interview with Fortune's Joshua Mendes, Gray explained his success.

What's your basic strategy? We don't try to ferret out unsung or underfollowed stocks. We prefer to own successful growth companies with consistently rising earnings, high returns on equity, and modest levels of debt. The key is that we wait to buy them cheap.

So you invest long term? Yes and no. Once we like a certain industry, we determine a range in which we think each stock should trade relative to the others and to its past price/ earnings multiple. If one stock rises more than the rest without a good reason, we will sell at least some of it and move into others. We always want to own the ones that are cheapest. Late last year, for instance, while most investors were just staring at their losses, we bought and sold shares even faster than usual, because the volatility was causing stock prices to get out of line with each other much more than normal. We swapped in and out of Johnson & Johnson and Bristol-Myers six times. As a result the turnover in our portfolio is roughly 200% per year, probably the highest of any bank fund.

Where are the bargains now? We think the best opportunity is in those high-quality growth stocks, which investors have neglected in favor of cyclicals. That will change as a recession looms closer -- perhaps by the end of next year. Investors will start selling their cyclical stocks and seek quality. A stock that can offer % 15% growth when the S&P is going to fall 5% will become very popular. The classic growth company is Masco, the home furnishings company, which has had 30 years of consecutively rising earnings. Over the past 15 years, earnings have compounded at a 19% annual rate. Among the few companies that have done better is Wal-Mart, which we also like. But it sells at a 50% premium while Masco sells at a 20% discount to the average price/earnings ratio of the market. Based on its record, you can't buy a cheaper stock right now.

What are your other favorites? Waste disposal is a nearly recession-proof business that averages 15% growth per year. We own Waste Management and Browning-Ferris, which continue to take market share from the mom-and-pop firms. Waste Management also deals with hazardous waste, a segment that grows at least 30% a year. We have long liked health care stocks, especially Bristol-Myers and Johnson & Johnson. Their shares are selling at historically low price/earnings ratios relative to the market.

Have you spotted any emerging growth companies? One coming out of the doldrums is Colgate-Palmolive. For ten years the company grew 2% a year as it diversified away from its core business. But since 1985 a new chief executive has refocused on shareholder value rather than empire building. Colgate is now boosting earnings at least 10% per year and could give Procter & Gamble a run for its money. An even bigger underdog is Consolidated Rail, which has improved notably since it went public early last year. It is also a play on the reindustrialization of mid-America. It hauls tons of industrial and auto products. With the U.S. gaining market share, those products can be a big beneficiary. At a recent price of $30 the stock sells at more than a 40% discount to the market, based on this year's estimated earnings. A 30% discount is more appropriate. The stock also has a 4% yield.

Any other groups you like? Oil. We don't think these companies need $25-a-barrel prices to make money. They are doing quite well at $15 and will do even better if prices reach $18 to $20 -- as we expect over the next three years. With many of these stocks yielding 5%, the potential total return is very attractive. We own a diversified portfolio, including all of the majors and the big service companies -- Schlumberger and Halliburton. One notable holding is Gulf Canada, a natural gas-rich company that is more than 70% owned by the Reichmann brothers of Olympia & York. At some point we think they will buy the rest.

Do you own any asset plays? We have a big bet on CPC International, formerly one of the biggest corn millers. It has sold off its foreign operations and will probably do the same with its U.S. plants. That will leave it with lots of cash and strong consumer brands like Hellmann's, Skippy, and Mazola. The stock recently traded at $47 per share, and we estimate the breakup value at $80. Another is Tele-Communications, the biggest cable television outfit, which throws off enormous cash flow. Companies in this business are sold frequently, so you have a good idea of their worth. If you apply the going rate to these properties, you get a number that is almost twice the recent share price of $22. I think the company is close to buying back a lot of its own stock.