NEW YORK (TheStreet) -- Small-cap equities are pricey now that they've soared, but there are still plenty of reasonably priced growth stocks, says Ford Draper, manager of the Kalmar Growth-With-Value Small Cap Fund (KGSCX). Draper favors Gentex (GNTX), Albemarle (ALB) and Elizabeth Arden (RDEN).
The $376 million mutual fund has returned 37% over the past year, according to Morningstar (MORN). During the past five years, the fund has risen an average of 6% annually, putting it in Morningstar's 34th percentile for small-cap growth funds.
Welcome to TheStreet's Fund Manager Five Spot, where America's top mutual fund managers give their best stock picks and views on the market in a five-question format.
Why is rear view mirror-maker Gentex a good play on the auto-industry recovery?Draper: Simply speaking, Gentex is the most profitable of any of the world's auto-parts suppliers. They have better mirrors with more features. They are penetrating new models. They are introducing new products like rear-camera displays. The company presently trades at a 20% lower multiple than usual, and it has the best new product slate in its history. Why is now a good time to be in Albemarle and the bromine business? Draper: You want to be in Albemarle for the bromine business and also for their refinery catalyst exposure. Both of these are oligopolistic industries. They have pricing power in both of them. They are gaining share and growing like crazy and the stock still trades at a modest multiple. Elizabeth Arden has had some problems over the past decade. Why do you think they are on the right track now? Draper: They are under new management for the past two years. They have tightened things up from soup to nuts. They have raised their operating margins and they are penetrating Europe where they are very little exposed but have a great brand recognition. Of all the business software providers you can choose, why do you like Ariba (ARBA)? Draper: Any company whose software can deliver industrial companies more efficient purchasing power and reduce your working-capital needs is a business you want to own. And this company is gaining significant share in that market. Ariba is raising operating margins, and they have a long runway ahead of it. Why should I find the floor-cleaning business, and the Tennant Co. (TNC), in particular, sexy to invest in? Draper: That's a darned good question and actually one of the reasons this stock is reasonably valued at the moment. This was a stodgy company. They are the leader in industrial-floor cleaning. They are rapidly penetrating the commercial floor-cleaning business, which is possibly three times as big because they have a new technology that allows them to clean the floor of a supermarket or drugstore with electrolyzed water. That saves all sorts of money and prevents the store owner from using noxious chemicals that they don't want to be associated with. -- Reported by Gregg Greenberg in New York. Readers Also Like: >> 4 Overlooked Agriculture Stocks >> 10 Androids That Outmuscle the iPhone
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