Buffalo Fund Mines Cheap Micro-Cap Stocks

NEW YORK (TheStreet) -- John Bichelmeyer, co-manager of the Buffalo Micro Cap Fund(BUFOX Quote), says he's finding cheap stocks despite the market's 20% gain this year.

The fund has risen 39% this year, beating 90% of its Morningstar(MORN Quote) peers. It hasn't fared as well long-term, losing 3.7% annually, on average, during the past five years.

Welcome to TheStreet.com's Fund Manager Five Spot, where America's top mutual fund managers give their best stock picks in five fast and furious questions.

Are you a bull or bear?

Bichelmeyer: We are bullish. Now keep in mind that our investment horizon is three to give years. Having said that, in the shorter term, is does appear the equity markets can continue to work their way higher as the economic recovery continues to unfold into 2010.

Despite the powerful market rally since March, the investment landscape is still one that we would describe as target rich. Opportunities are not as abundant as they were during the fourth quarter of last year and the first quarter of this year, but valuations remains attractive in our early stage, growth company universe.

What is your top stock pick?

Bichelmeyer: The largest position in the fund right is MarketAxess Holdings(MKTX Quote), which is a provider of software that enables the online trading of corporate bonds, other fixed income securities and derivatives. Unlike equities, fixed income trading has still not aggressively migrated to electronic marketplaces. We believe that this will change in the coming years and MarketAxess is well positioned to take advantage of this shift. The company has extremely high incremental margins and generates a tremendous amount of excess cash flow that can be used to reinvest for future growth or returned to shareholders.