(MONEY Magazine) – If Bob Rodriguez wasn't a mutual fund manager with a contrarian bent, he'd probably score big on Antiques Roadshow. Inside his FPA Capital fund, you'll find an odd collection of castoff small, overlooked stocks that Rodriguez hangs on to--often for years--until Wall Street finally recognizes their intrinsic worth. His patient strategy has produced an annual average 17.6% return over the past 15 years, better than any of FPA Capital's small-cap value peers. During the tech boom, however, the market regarded Rodriguez's value picks as trash, not treasure. Starting in 1997, the fund slumped badly, lagging the S&P 500 for three straight years.

Now with the Nasdaq in a tailspin, Rodriguez is riding high again. In the 12 months that ended Jan. 19, FPA Capital delivered an 11% gain, nearly 18 percentage points ahead of the S&P. Also in January, Rodriguez reopened FPA Capital to new investors for the first time since May 1995, while lowering the sales charge to 5.25% from 6.5%. "I see a large number of investing opportunities," Rodriguez explains. The manager recently discussed some of them with MONEY's Penelope Wang.

Q. The tech-stock boom crushed a lot of value managers and their shareholders. Why should investors have confidence in value investing going forward?

A. The stuff that had been put forth as critical analytical research--"dotcom metrics" and the like--was garbage. And so-called investment professionals bought this garbage. As a value investor, I had to defend myself from critics; I think these people should now defend themselves. Unfortunately, 95% of people invest by looking in a rearview mirror. Before giving up on a fund manager who has generated long-term success, investors should ask themselves, is the manager doing anything differently from before? If not, they should give that manager room to run.

Q. Your portfolio is nearly 25% in tech. How can you buy tech stocks and still be a value contrarian?

A. I look for backdoor ways of participating--poor man's technology stocks, if you will. For example, Arrow Electronics and Avnet, my two largest holdings, are the largest distributors of electronics. These two killed me in November, when all tech stocks got crushed--they'd been valued at 10 times earnings, then went down to five times earnings--but Arrow and Avnet are in the best competitive position they've ever been in, and component shortages are helping to boost orders and fatten margins. Now at $32 and $25, respectively, they have already rebounded to about nine times earnings.

Q. What about your stake in Storage Technology? It was down nearly 50% last year.

A. I blew it. I underestimated the impact Y2K would have on softening orders and the difficulty the company would have bringing its marketing in-house. Still, I figured I wouldn't compound my mistake by selling the stock at the bottom. At $8 a share, the risk was de minimus--even if nobody buys another PC, the demand for data storage will still grow. So I've added to my stake. Either Storage Technology will get its act together or someone else will do it for them. So far in 2001, the stock is up 40%.

Q. Another big chunk of your fund is in retailer Michaels Stores, your No. 3 holding.

A. You rarely find a retail concept with little competition. Michaels is the only national retailer of arts and crafts supplies in the U.S. The concept has great demographics, and the market is not overly saturated. With more than 600 stores today, Michaels could have 1,000 outlets in four years. Their sister chain of art-framing stores, Aaron Bros., is also growing rapidly. As the company achieves greater economies of scale, there's no reason why they can't get to double-digit operating margins. It's now trading at about $35, and we think that in three to five years Michaels could be a $100 stock.

Q. So with all the new investing opportunities you see, what are you buying now?

A. The only new name I can talk about is Celanese, a leading international chemical company, which was spun out of Hoechst and has headquarters in Frankfurt. It used to be a U.S. company but now trades here as an ADR. Its profitability has been hurt by the rise in energy costs, but we think that's temporary. And as the euro strengthens, that'll also help boost Celanese's share price, now at $17.

I've also been adding to an existing holding, Conseco, the insurance company. It's had major operational problems, particularly the write-down of its Green Tree subsidiary. When the stock collapsed last spring, we got a lot of criticism for holding it. Our team did a major re-evaluation of our investment, and we concluded that Conseco's portfolio is stable and we decided to buy more shares. I was encouraged, I might add, that a certain well-known value manager--Warren Buffett--has purchased Conseco's bonds, and the stock is back up to $15. Now I don't look so bad.