Right now, one of our largest holdings is People's United Financial ( PBCT) out of Connecticut. It fits into our "back to the basics" theme within banking. We believe old-fashioned spread bankers with good deposit bases and a history of sound underwriting are poised to gain market share. The management team is pretty conservative and they are one of the best capitalized banks out there. What is your top "beneath the radar," or "sleeper," stock pick? Sloan: Right now there are some very interesting backdoor plays into health care, more on the "picks and shovel" side if the industry. One of our newer investments is Pharmaceutical Product Development ( PPDI). It is an industry leader with a strong balance sheet and solid management and the firm stands to benefit from the favorable trend in outsourcing. What is your favorite sector? Sloan: There have been some attractive opportunities in information technology over the past year, but I don't think you can cast a wide net over any sector right now. You have to really be focused in this environment. Generally speaking, balance sheets in technology are in good shape. They have ample cash on hand and offer exposure to growth beyond the U.S., but that is not enough. We have focused in on what we call growth-value anomalies -- companies that are experiencing some sort of short-term distress but have an achievable path to growth. That being said, things move quickly these days and in the past several months we have taken some profits in the sector. More recently, some areas of consumer staples have started to pique our interest as investors have started to leave the sector's steady cash-flow producers to chase higher beta in other areas. Overall, I think we have a portfolio of very company-specific opportunities across sectors rather than an overwhelming bias toward any one sector.
What sector or stock would you avoid? Sloan: There are three sectors in which we have minimal or no exposure right now: consumer discretionary, utilities and telecommunications. Consumer discretionary is probably our most contrary stance as it is a fairly significant part of our mid-cap universe. Given the backdrop of falling home values and an over-indebted consumer balance sheet, we are not optimistic that consumer-spending trends or earnings in the sector will rebound strongly in the near future. It may take an extended period of time to work off the excesses created by the debt and housing bubbles, and it is unlikely that consumer spending will ever reach the artificially inflated levels created by it. Utilities are not interesting because there is no controversy to create growth-value anomalies and valuations are not compelling.