One of the best value investing fund companies today is Wisconsin-based Heartland Funds, led by portfolio manager Bill Nasgovitz and his 40 years of investing experience. Heartland's three funds all are rated four stars or higher by Morningstar, so it seemed like a good idea to pick the final four stocks in my series of 48 micro-, small-, mid- and large-cap stocks from two of its funds. The micro cap will come from the Heartland Value fund, which invests in both small and micro caps. The remainder will come from the Heartland Select Value, which is an all-cap fund but holds no micro caps. Going forward, I'll provide readers with an update on how the 48 stocks are performing. I'm sure they'll do just fine.
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Micro Cap - Dynamics Research (Nasdaq: DRCO)
Heartland currently owns $16.1 million in its stock. That's 12.7% of its outstanding shares. Given its size, I doubt the fund will sell this position anytime soon. And for good reason. The management consultant provides services and solutions to federal and state governments. Its third quarter saw revenues increase 9% year-over-year to $69.2 million from $63.5 million. Organic growth contributed 240 basis points of the increase, which is always positive, especially in these market conditions. As for earnings, excluding one-time charges and benefits, earnings per share were 25 cents - three cents better than the same quarter a year earlier. Management estimates sales will be approximately $277 million with $1 in earnings per share. That translates to a forward P/E of 12. That's low considering its outlook for 2010 is extremely bullish, and bookings and contract awards are higher than ever.
Small Cap - Force Protection (Nasdaq: FRPT)
Force Protection makes vehicles for the military. Not any ordinary ones, but armored personnel carriers like its Cougar, Cheetah and Buffalo product lines. They are routinely mentioned in news stories about improvised explosive devises in Iraq and Afghanistan. This is a company with a serious mission. It doesn't hurt that in addition to keeping soldiers safer, it's one profitable company. In the Q3 it beat analyst earnings per share estimates by almost double, delivering adjusted EPS of 23 cents, 11 cents higher than expected, and revenues of $316.2 million, $104.4 million higher than analyst exepectations. Force Protection's CEO indicated in its announcement that cost reductions would increase in forthcoming quarters, which should help add to the bottom line. In terms of free cash flow, it has an 11.1% yield and a 15.4% cash return on invested capital. Both are more than acceptable. It generates a great deal of cash without incurring a lot of debt.
Mid Cap - Omnicare (NYSE: OCR)
On November 3, Omnicare announced it was settling with the U.S. Department of Justice, agreeing to pay $98 million for its part in a kickback scheme with nursing homes in the Atlanta area. The Wall Street Journal alleges it received kickbacks from Johnson & Johnson (NYSE: JNJ) for recommending Risperdal, an antipsychotic drug. As it happens, Heartland also owns J&J stock. It's all very sordid. The news put a damper on Omnicare's excellent Q3 earnings announcement two days later. In Q3, it increased earnings per share 32.6% year-over-year from 46 to 61 cents. Revenues were down slightly from $1.58 billion last year to $1.54 billion this year. Both numbers met analyst expectations. It announced EPS for all of 2009 would be $2.50-$2.52 per diluted share. While that's good, the best part about Omnicare is its free cash flow. In the trailing 12 months, it has generated $496.2 million in free cash for a 17.1% yield, and a 7.5% cash return on invested capital. Not spectacular but it'll do.
Large Cap - Bank Of New York Mellon (NYSE: BK)
Without sounding corny, my best reason for buying Bank of New York Mellon is that it's run by Bob Kelly, a Canadian. Kelly spent 19 years learning the banking business with Toronto Dominion Bank (NYSE: TD) before heading south to take the CFO position at First Union, just prior to the Wachovia acquisition in 2001. One thing led to another, and he's now in charge of the world's largest custodian of assets. Kelly has even been approached about considering the top job at Bank of America (NYSE: BAC). He's not going anywhere. The man believes Bank of New York Mellon is in position to grow. I agree.
It's hard to argue with 40 years of investment experience. If Bill Nasgovitz likes these stocks, you should too. (For more, see Top Five All-Time Mutual Fund Managers.)
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