NEW YORK ( TheStreet) -- The Russell 2000 Index of small companies is hitting new highs, heightening awareness of Capella Education ( CPLA), Sturm, Ruger ( RGR), Service Corp. ( SCI) and other stocks, says Jonathan Moody, manager of the Touchstone Small-Cap Core Fund ( TSFAX).The $199 million mutual fund has returned 10.4% this year, putting it in Morningstar's ( MORN) 34th percentile for small-blend funds. Over the past year, the fund has risen 22%, also better than two-thirds of its rivals.
The funeral-services business is fragmented and plagued by unsuccessful roll-ups. Why should an investor want own Service Corp. -- or be in that space at all? Moody: Service Corp. is one of the largest players in the death-care business. What we like about them is that they have been facing a declining death rate, but the fact of the matter is that 65-and-older is the fastest age group in America. So, eventually, Service Corp. will benefit as the death rate ticks up, and it has in the last few quarters. We like that it is generating a huge amount of cash with about a 9% free cash flow yield. They are taking that excess cash flow and buying back stock and delivering. They are very well-positioned. Everybody is talking about Lubrizol (LZ) because of the big Berkshire Hathaway (BRK-A) purchase, but you like its competitor NewMarket (NEU). Moody: We have owned NewMarket for some time. They are a close competitor to Lubrizol. It's an oligopoly, so the pricing is stable. They make lubricant-fuel additives that are used in engine oils and transmission fluids and things of that nature. Despite the price of the stock being bumped up when Berkshire bought Lubrizol, NewMarket has a long way to go. It's generating a tremendous amount of cash. They are buying back stock. They just increased their dividend by 36%. It's a very well-run company, and management seems to run it in a very shareholder-friendly way. -- Reported by Gregg Greenberg in New York.
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