NEW YORK (MONEY Magazine) - On a sunny day in late July, Bill D'Alonzo is eating lunch at a country club in Delaware's bucolic and verdant Brandywine valley, speaking affectionately about his wife and children and his life growing up with six siblings, and recounting stories about alligator hunting in Florida.

The soft-spoken Delaware native with the boyish face occasionally takes a bite of his chicken salad sandwich, greets fellow club members and glances down at his pager. All in all, D'Alonzo appears as calm and peaceful as the setting.

That veneer quickly vanishes as soon as he returns to his nearby office. Facing scandal-ridden companies, crashing financial markets and few concrete signs of growth on the horizon, D'Alonzo, the 47-year-old manager of the $3.3 billion Brandywine fund, is worried. "This is one of the toughest periods I've been through since I started doing this," he admits.

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D'Alonzo, along with veteran investor Foster Friess, has run the midcap growth fund since its debut in 1985 (these days, D'Alonzo handles day-to-day operations). The fund returned 13.7 percent a year in the past decade, compared with the S&P 500's 11.2 percent return over the same period. (The average midcap growth fund returned 9.7 percent.)

D'Alonzo has built that record by using a bottom-up approach, sticking to companies with projected earnings growth of 20 to 30 percent and to those trading for less than 25 times earnings.

He also trades frequently (the fund has a turnover rate of 200 percent) and likes to hold more than 160 stocks. So it's no wonder that given those hurdles and his general distrust of earnings, D'Alonzo is finding it harder to shop for stocks these days.

Nevertheless, he believes that there are still opportunities and that finding them is just a matter of doing your homework. Now more than ever, Brandywine's growth guru recommends focusing on the source of earnings. For example, when he recently bought Sears, where earnings are expected to jump nearly 25 percent to $5.27 in 2002 and which trades at eight times projected 2003 earnings, D'Alonzo says he made sure the $5.21 was "real."

Stocks to watch: D'Alonzo       Aflac Coventry Health Care Sears

"We started with the revenue numbers and worked right through items like cost of goods, income tax and interest income to come up with our own calculation," he explains. He employs a consultant whose only job is to scrutinize filings and their footnotes for arcane accounting issues. "He's a former treasurer at Compaq, so he's played some games on the other side of the fence," notes D'Alonzo.

In fact, about a year ago the fund manager was eyeing AOL Time Warner (parent of CNN/Money) for its steady, predictable revenue stream. But after his consultant came upon a note in one of the media company's regulatory filings that explained AOL's commitment to buy the 49.5 percent stake it didn't already own in AOL Europe from Bertelsmann for a hefty $7 billion, D'Alonzo passed. At the time, AOL shares were trading at $40. Since then, they've cratered to $13.

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In the short term, the fund manager doesn't see any immediate growth surges in the economy. He believes capital spending will not start growing for at least six months, since the bulk of capital spending had been on tech, and there are already too many computers and telephones sitting idle in offices.

He also says that a war with Iraq, something he expects to happen, could have devastating effects on the economy and the markets. Long term, his view is a little rosier (although his analogy is a little gory): "You go to the dentist and come out better, but you have to spit some blood in the meantime, and that's what's going on. Five or 10 years from now we'll all look back and wish we'd put money in the market in the summer of 2002."

So where is he investing? D'Alonzo looks for companies that take advantage of change. For example, after Sept. 11, he noticed that Americans were spending more time at home, or "cocooning," so he plowed money into video chains Blockbuster and Hollywood Entertainment.

Given today's accounting troubles, he's recently been investing in companies with clean, simple stories and earnings that are clearly visible. These include retailers, which, at 31 percent of the fund's assets, make up the largest sector weighting.

D'Alonzo likes the aforementioned Sears, which is a top 10 holding. Not only does it have healthy books, he notes, but it's got great management, its hardware business is picking up and new acquisition Lands' End is helping to drive the apparel business.

Another sector D'Alonzo is eyeing is health care, because of its consistent earnings stream. He continues to add to a position in supplemental health and life insurance provider Aflac. Business in Japan, which accounted for 77 percent of Aflac's revenue in 2001, is growing as the company benefits from improved marketing and sells more cancer policies.

Meanwhile, the U.S. operation is enjoying increased demand for its policies, a byproduct of its very successful duck commercials. D'Alonzo also likes managed-care provider Coventry Health Care, which at $31 sells for 12 times 2003 earnings estimates. Thanks to increasing membership and cost-cutting efforts, he expects the company to have 20 percent growth for the next three years.