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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (40088)	8/20/2003 4:22:33 AM
From: Johnny Canuck	Read Replies (1) \| Respond to of 69233

Investor's Business Daily Hodges Fund Shifts Into Smaller Caps Tuesday August 19, 10:33 am ET By Ken Hoover Early this year, Don Hodges and son Craig decided the bear market was about over. They bought shares of small companies they thought would add pop to the performance of $26 million Hodges Fund (Nasdaq:HDPMX - News) once the market started to recover. "After three bad years in the market, it was time to get aggressive," said Don Hodges. "It made sense to move into small and mid-cap companies. We thought they were oversold and will do better in a strong recovery, as opposed to blue chips, which might gain 10% or 15%." Hodges Fund was up 45.77% this year going into Monday vs. 13.76% for the S&P 500 and 19.6% for mid-cap growth funds. It is among the top-performing diversified stock funds. Over the past five years, the fund gained an average annual 1.95% vs. 1.94% for the S&P 500 and 2.25% for its peer group. The fund's buys included E-Trade, Wackenhut Corrections, XM Satellite, Cornell Cos. and Intervoice. Intervoice and XM Satellite have produced better than 200% gains for the fund, and the Hodges team has since lightened up on them, even though they remain top holdings. Hodges Fund defies classification. It holds both growth and value plays. Normally, parts of the fund are in large-, mid- and small-cap names. But this year the father-and-son Hodges team reduced big-cap exposure to bet on a market recovery. "We're looking for anything that will go higher," Don Hodges said. "We don't want to limit ourselves to a single discipline." The fund rebought an old holding, Home Depot, that the fund had held for several years before selling when the Hodges team thought it was undervalued. "The stock got entirely too cheap," said Don Hodges. "It's still a good company. It still has a good growth rate. When it got into the low 20s, it was time to buy it back." Home Depot now trades around 34. The fund also has fast growers like Tyler Technologies, a new buy that is among its top holdings. The firm makes software used by local governments to computerize handling court, tax and other records. The fund got in at an average price of 3.62. Now the stock is over 5.50. Under Wall Street's Radar Don Hodges, 69, is chairman, and Craig, 39, is president of First Dallas Securities, a regional brokerage which is the fund's sister firm. The fund uses ideas from the firm's analysts and brokers, who hear of good companies flying under Wall Street's radar, often right under their noses in Texas. "One of the areas we're most excited about is the underfollowed situation," said Craig Hodges. "We come across a lot of companies the Street isn't covering. A lot of companies don't need investment banking services, so no one is covering them." Tyler is one such stock. Lone Star State stocks play an important part in the portfolio. The Hodges duo say management is accessible. Dallas-based Tyler, Texas Instruments, Texas Pacific Land Trust, pants maker Haggar, Southwest Airlines and Cornell Corrections are among big holdings with Texas addresses. Cornell is one of three stocks in the portfolio in the private prison business. The other two are Corrections Corp. of America and Wackenhut Corrections. Private prison stocks soared in the mid-1990s as state governments were contracting to have private firms build and run prisons. They languished when the private jail business slowed. "They're back," Don Hodges said. He thinks budget crunches will force state legislatures to consider private prisons as a way to cut costs. And he expects the Homeland Security Department to contract with private firms to hold illegal aliens. A top performer this year is Waco, Texas-based Dwyer Group. Riverside, a private firm, made a $6.75-a-share buyout offer in May. The stock was selling at 4.25 the day before. The Hodges duo bailed out with a nice profit. Beefing Up Defense In the past few weeks, the two Hodges have added defensive names like Microsoft, Wal-Mart and Pfizer to the portfolio. They dumped some highflying names like Internet portal Ask Jeeves. They think a new bull market has begun, but they expect the market to be stuck in neutral for a few months before heading higher. "We've come a little too far too fast," Don Hodges said. "The next few months are probably not going to be as good as the last few."