Emanuel Weintraub: Risk and Reward on the Long Side

Can you describe your stock selection process?

EW: A classic screen we use is for companies over a billion in market cap (so we can get in and out quickly) that have declined substantially in value (we don't disclose the formula that we use), with a pretax return on assets greater than 10%. Once a company gets through our screens, then we manually create the optimistic and pessimistic models, so it is quite labor intensive.

What sectors do you stay away from?

EW: We would avoid your typical technology firm that has not expensed options yet. These companies are in for an earnings hit, as these charges get factored into the marketplace, and we don't think the Street has fully recognized the impact.

What sectors do you like?

EW: We think the risk/reward is attractive in many medical technology names, property insurance companies, and then also we are early enough in a turning cycle to find an investment in the merchant energy space that we think is attractive.

Give us some of your favorite picks.

EW: We like the risk/reward at Cooper Cos.(COO - Cramer's Take - Stockpickr), Reliant Energy(RRI - Cramer's Take - Stockpickr) and Platinum Underwriters(PTP - Cramer's Take - Stockpickr). For Cooper, there has been a recent disappointment in the context of a very strongly growing underlying industry, and we bought it after the bad news was out. We purchased Reliant Energy at a significant discount to NAV. Their cycle had bottomed in 2003. We expect them to benefit from utilization of the overbuild that occurred in the early part of this decade as well as some pricing freedom in 2007. We like Platinum Underwriters, a Bermuda-based reinsurer with strong underwriting discipline that we purchased close to book, which we view as the downside price. We expect it to profit from the improvement in insurance prices in 2006.

What about energy?

EW: The risk/reward is attractive at Chesapeake Energy(CHK - Cramer's Take - Stockpickr) and ConocoPhillips(COP - Cramer's Take - Stockpickr). Most analysts assume that normalized energy prices will be substantially lower than they are today. This assumption is built into the stock, and that limits the downside.