mlk_man
03-15-2006, 06:14 AM
Two Picks from a Go-Anywhere Manager
Don Hodges
Hodges Fund
http://www.bottomlinesecrets.com/images/drop_caps/blue_c.gif onsidering its excellent record -- beating the S&P 500 stock index by significant margins over the past year, three years, five years and 10 years -- the Hodges Fund hasn't gotten much notice from investors. The portfolio is still small (by today's standards) at around $400 million, and the fund-rating firm Morningstar even goes out of its way to caution that Hodges is "a fund that's not for everyone."
Comanager Don Hodges suspects that his Dallas-based fund's annual expense ratio, recently 1.68% per year, is what has kept many potential investors away -- even though the fund's strong returns are calculated after deducting those expenses. (Expenses have been coming down recently as the fund grows.) The fund is also more volatile than most, although its Sharpe ratio, the measurement that relates return to risk, is a relatively high 1.93 -- meaning that the fund has given investors plenty of extra return along with the extra volatility. (In comparison, the popular Vanguard 500 Index Fund, which tracks the S&P 500 Index, is less volatile but has a less attractive Sharpe ratio of 1.51.)
Finally complicating matters for the Hodges Fund is the fact that it is a go-anywhere fund that can invest in any combination of companies of any size, so it doesn't conform to an easily defined category.
While the fund might not be everyone's cup of tea, there's no arguing that Don Hodges and his comanager -- son, Craig Hodges -- can pick stocks. Their approach is to concentrate on companies with strong earnings growth prospects 18 months out and beyond, based on their industries' business cycles. Their mix can include beaten-down value plays and high-momentum growth stocks -- and everything in between. Lately, they've been finding mostly large-company stocks that are worth buying. Here is one of those, and a small company that they also like very much...
GlobalSantaFe Corp. (GSF). Energy services stocks have been extremely rewarding -- and extremely volatile -- throughout the run-up in oil prices. This Houston-based drilling company is especially well-positioned due to a worldwide shortage of rigs. The biggest users of rigs now are governments -- for example, Saudi Arabia, China and Brazil -- and rising demand has pushed the day rental rate for an offshore rig to $150,000 from $100,000 last year. GlobalSantaFe (market cap: $13.74 billion) has a large inventory of offshore rigs, which can cost hundreds of millions of dollars each to build. No one's going to flood the market overnight with new rigs at that kind of construction cost. Recent price: $56.50.
Rocky Mountain Chocolate Factory (RMCF). This Durango, Colorado-based company's stock, with a total market value of just $95 million, could be worth holding for four to five years, Don Hodges believes. The company franchises retail chocolate stores, more than 300 at present, mainly in resort areas and upscale shopping centers, and is adding about 40 stores a year. Since franchisees put up money for expansion, buy their chocolates from the company and pay a royalty, Rocky Mountain is mainly a manufacturer and distributor -- and is debt-free thanks to its limited role. Recent price: $15.05.
Don Hodges
Hodges Fund
http://www.bottomlinesecrets.com/images/drop_caps/blue_c.gif onsidering its excellent record -- beating the S&P 500 stock index by significant margins over the past year, three years, five years and 10 years -- the Hodges Fund hasn't gotten much notice from investors. The portfolio is still small (by today's standards) at around $400 million, and the fund-rating firm Morningstar even goes out of its way to caution that Hodges is "a fund that's not for everyone."
Comanager Don Hodges suspects that his Dallas-based fund's annual expense ratio, recently 1.68% per year, is what has kept many potential investors away -- even though the fund's strong returns are calculated after deducting those expenses. (Expenses have been coming down recently as the fund grows.) The fund is also more volatile than most, although its Sharpe ratio, the measurement that relates return to risk, is a relatively high 1.93 -- meaning that the fund has given investors plenty of extra return along with the extra volatility. (In comparison, the popular Vanguard 500 Index Fund, which tracks the S&P 500 Index, is less volatile but has a less attractive Sharpe ratio of 1.51.)
Finally complicating matters for the Hodges Fund is the fact that it is a go-anywhere fund that can invest in any combination of companies of any size, so it doesn't conform to an easily defined category.
While the fund might not be everyone's cup of tea, there's no arguing that Don Hodges and his comanager -- son, Craig Hodges -- can pick stocks. Their approach is to concentrate on companies with strong earnings growth prospects 18 months out and beyond, based on their industries' business cycles. Their mix can include beaten-down value plays and high-momentum growth stocks -- and everything in between. Lately, they've been finding mostly large-company stocks that are worth buying. Here is one of those, and a small company that they also like very much...
GlobalSantaFe Corp. (GSF). Energy services stocks have been extremely rewarding -- and extremely volatile -- throughout the run-up in oil prices. This Houston-based drilling company is especially well-positioned due to a worldwide shortage of rigs. The biggest users of rigs now are governments -- for example, Saudi Arabia, China and Brazil -- and rising demand has pushed the day rental rate for an offshore rig to $150,000 from $100,000 last year. GlobalSantaFe (market cap: $13.74 billion) has a large inventory of offshore rigs, which can cost hundreds of millions of dollars each to build. No one's going to flood the market overnight with new rigs at that kind of construction cost. Recent price: $56.50.
Rocky Mountain Chocolate Factory (RMCF). This Durango, Colorado-based company's stock, with a total market value of just $95 million, could be worth holding for four to five years, Don Hodges believes. The company franchises retail chocolate stores, more than 300 at present, mainly in resort areas and upscale shopping centers, and is adding about 40 stores a year. Since franchisees put up money for expansion, buy their chocolates from the company and pay a royalty, Rocky Mountain is mainly a manufacturer and distributor -- and is debt-free thanks to its limited role. Recent price: $15.05.