WD40 (WDFC) is well known to be one of the most trustworthy products on the market, but Craig Stone, portfolio manager for the Virtus Quality Small-Cap Fund (PQSCX), says investors can have faith in the stock as well.
"First of all there's no competitor to WD40, so here you have a company that has pricing power for a proprietary product. Meanwhile, it pays a 2.7% dividend which is pretty impressive for a small company," says Stone.
The $307 million fund, which garners 4 stars from Morningstar, is up 10.5% over the past 12 months, putting it in the top 4% of Morningstar's small-cap blend category. Over the past five years, the fund has returned an average of 2% annually, outpacing 62% of its Morningstar rivals.Stone is also bullish on logistics provider Landstar System (LSTR) which matches customers with independent truckers. "So the trucker can move a good from point A to point B, but they can also get a shipment back from point B to point A and get home at night, which benefits both sides," says Stone. In the technology arena, Stone's top choice is financial services specialist Jack Henry & Associates (JKHY) because small banks may be struggling, but they still need to compete against the industry juggernauts. "A lot of these small banks don't have that IT staff or that infrastructure knowledge to compete against larger banks. So Jack Henry can help them either with some of the software or become their outsource provider which is perfect for them," says Stone. Finally, Stone is bullish on publicly traded pawn shops like First Cash Financial (FCFS) which he says are being seen in a new light due to the popularity of TV shows like A&E's Pawn Stars . "It's fairly recession resistant and also there's less of a stigma to it because of shows like Pawn Stars where people are seeing that it's not just for a certain income class that needs money. Today, it's become a retail destination or a retail shop environment," says Stone.
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