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Fund Manager Scours Stock Bargain Bin

Stocks in this article: APPLXPDIPETM

NEW YORK ( TheStreet) -- Joshua Strauss, manager of the Appleseed Fund (APPLX), says PetSmart (PETM) and PDI Inc. (PDII) stand out as undervalued companies in an increasingly pricy market.

The fund has risen 54% this year, more than 96% of its Morningstar mid-cap value peers. Over the past 12 months, the Appleseed Fund is up 58%, beating 97% of its rivals.

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

Are you bullish or bearish?

Strauss:We are bottoms-up stock pickers, and we try to spend our time focusing on picking undervalued companies rather than making market calls. That being said, we are finding fewer undervalued stocks compared to earlier in the year. We clearly are bullish on the stocks of companies we own in the Appleseed Fund.

What is your top stock pick?

Strauss: PetSmart is an attractive and relatively defensive business that has delivered consistent same-store sales increases and maintains a relatively immature store base. The company appears well-positioned for market-share gains in the coming years, even with a leading 13% market share position in the $43 billion U.S. pet-supply market. With unrivaled product diversity and unique service offerings, PetSmart has sizable competitive advantages to keep the competition at bay. In our view, the risk/rewards for investors of PetSmart shares appear compelling, with its stock trading at a 5.5 times EV/EBITDA multiple and at an 11% free cash flow yield.

What is your best "sleeper" stock pick?

Strauss: We like PDI, which provides contract sales people to the pharmaceutical industry. The stock price is currently trading at less than the value of the cash on the balance sheet, which is more than $5 per share. The company recently hired a new CEO, who we expect will revitalize the company's business-development efforts during a period of great opportunity for the contract sales organization (CSO) industry. We believe there is considerable upside on PDI shares without a lot of downside risk.

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