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Fund Manager Finds Hidden Growth Stocks

NEW YORK (TheStreet) -- The economy may be hitting a soft patch, but stock selection in fast-growing industries can generate gains, says Tim Holland, manager of the Aston/TAMRO Small Cap Fund (ATASX). He's bullish on stocks such as CarMax (KMX) and Royal Gold (RGLD).

The $1 billion fund, which garners four stars from Morningstar (MORN), has returned 32% over the past year, better than 57% of its peers in the small-growth category. During the past five years, the fund has risen an average of 6.3% annually, outpacing 80% of its Morningstar rivals.

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.

Detroit is making a comeback, profiting from sales of newly introduced cars. So why do you want to own shares of used-car seller CarMax?

Holland: Long term, the story is very compelling because of the market-share potential. They have less than 5% market share with around 100 stores today. They can get to 300 before they hit saturation. The economy is better but it is still not great. You have a lot of mom-and-pop dealers that are still struggling and that creates market-share opportunities for CarMax in the long term.

Among gold-mining companies, you're partial to Royal Gold. Why?

Holland: It's the leading gold royalty company. It's a pure play. It has around 20 employees and it's around a $3 billion market cap. They put capital to work but take individual stakes in specific mines. Management has been together for over 20 years and they are great allocators of capital.

There remains a lot of skepticism about the banks, especially the small ones. So how do you make the case for Bank of the Ozarks (OZRK)?

Holland: We have too many banks in this country and too many weak banks. The Bank of the Ozarks already has done several FDIC-assisted acquisitions in the last 12 months. They have proven to be very accretive. They are well-capitalized. We think they are going to do more deals.

What is attractive to you about the REIT space and in particular Colonial Properties Trust (CLP)?

Holland: Colonial is a multi-family REIT, which is a fancy way of saying apartments. Home ownership is coming down. And in the next couple of years, occupancy and pricing should continue to move up. Both those things should move profitability higher.

AGCO (AGCO) has done particularly well in the emerging markets. What happens to the company if the global agricultural market really takes a turn for the worse?

Holland: The stock has already corrected around 20% despite reporting fantastic numbers because people are worried about the global growth story. Supply and demand from a commodity perspective looks very robust. They are well-positioned, and we think they will do well over the long run.

-- Reported by Gregg Greenberg in New York.

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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