(Add to note Cliffs Natural Resources add to Goldman Sachs "conviction buy" list.)
BOSTON ( TheStreet) -- The Auer Growth Fund (AUERX) has three strict criteria in its stock-selection process, and once in the portfolio, if a company fails to continue to meet them, they're out -- fast.
The criteria are: a 25% increase in earnings per share each quarter; 20% revenue growth per quarter; and trade below 12 times earnings.
"If they stop doing that, we sell them, or if they double (in price), we sell them," said Bob Auer, founder and manager of the $136 million fund."We've been doing this for 25 years," he said of the investing style. He brought the fund out as a retail mutual fund about three years ago. Auer said the premise was spawned in 1986 when he was a broker in Indianapolis for Dean Witter, a long-gone national brokerage and helping his father invest his $100,000 individual retirement account. By strictly sticking to that simple investing strategy, and the addition of another $10,000, the account grew to $34 million by the end of 2007. Auer admits that his Growth Fund's performance "zigs and zags, since it's so different from the market. We're now about 18% behind the market (this year and market conditions are) similar to 1989," when traditional fundamentals lose their importance. "Every 10 years or so we have a period where we fall flat on our face," but Auer swears by the success of his approach. The fund is down 13% this year versus the S&P 500's 2.3% gain. It has a three-year average annual gain of 14% versus the benchmark index's 15.4%. Auer said that from 1999 to the end of 2009, in the so-called "lost decade," when the S&P 500 lost 1% per year, his fund went up 10-fold and that includes a 53% down year. Here are five stocks that Bob Auer says are representative of his fund: