By Stuart Weinberg
Of DOW JONES NEWSWIRES
TORONTO (Dow Jones)--The economic recovery may have begun, but it's "way too early to move up the risk ladder," says Peter Hodson.
For that reason, Hodson, portfolio manager of the Sprott Growth Fund, is adhering to an investment style that he refers to as one-way beta. Boiled down that means: don't take any unnecessary chances. "We may, for all I know, be in a bear-trap rally and I don't want to get caught," Hodson said.
Hence, the focus is on companies with strong balance sheets, earnings sustainability and market leadership. To be sure, those things are always important, but as a growth manager, Hodson is sometimes willing to pay a premium for riskier names with promising growth prospects. This isn't one of those times. "I want to buy safe growth until I see some better economic numbers," Hodson said.
By safer growth, Hodson is referring to companies like Ruggedcom Inc. (RCM.T) and Aastra Technologies Ltd. (AAH.T). Both have strong balance sheets, no debt and and good - albeit not great - growth prospects.
Aastra, a provider of communications networking products, has fared particularly well this year. Its stock surged 47% in a single session in February following the release of strong fourth-quarter results, and another 35% in one session in April after the release of strong first-quarter results.
Hodson said investor reaction to Aastra's earnings gave him hope that the worst may be over. That's because, last year, investors essentially ignored good earnings and guidance, he said, adding that he has never seen anything like it in 25 years on Bay Street.
In addition to Ruggedcom and Aastra, the C$94 million fund holds stakes in CryptoLogic Ltd. (CRYP) and Absolute Software Corp. Regarding CryptoLogic, which licenses software to Internet-gambling companies, Hodson said the company's stock is inexpensive and cushioned by its large cash position. As well, CryptoLogic pays a small dividend and its new management team has executed well, he said.
As for Absolute, Hodson said he believes it could be a takeover target, given the company's low share price and the complementary nature of its technology for companies like Symantec Corp. (SYMC) and McAfee Inc. (MFE). Absolute makes software that helps tracks lost or stolen laptop computers.
Hodson is rare in the world of stock pickers in that he isn't reticent about admitting mistakes. He said that, while he is likely to add Calian Technologies Ltd. (CTY.T) to the portfolio, he is not sure why he waited so long. Calian, a provider of IT-outsourcing services, is up about 43% this year. Hodson said he still believes the stock is inexpensive, noting the company recently raised its guidance and dividend. "It's stupid, stupid cheap," he said.
Company Web Site: https://www.sprott.com -Stuart Weinberg, Dow Jones Newswires; 416-306-2026; stuart.weinberg@dowjones.com