Quick Take: John Enlund, who leads the five managers that oversee Country Growth Fund (CTYGX), looks for companies whose revenues and profits increase over time. Enlund, however, wants to buy their stocks at attractive prices. He also favors companies that grow by introducing new products or entering new markets, rather than through acquisitions.

The fund gained 0.2% through the first quarter this year, while the average large-cap value fund was up 2%. But Country Growth’s record over the long term is better. It returned 13.2% per year on average for the ten years ended in March, while its peers were up 12%.

The Full Interview

What does a money manager do if his outlook for the market is pessimistic?

If you’re John Enlund, you hoard cash, which can serve as a cushion if stocks fall. The $175-million Country Growth Fund he helps run currently has about 12% of its assets in greenbacks compared to a more typical 3% to 5%.

“We’re having difficulty finding companies we want to own,” Enlund said. “But I’m sure that’s going to turn around at some point in the future, and I’m going to have some powder dry to be able to buy those names.”

When Enlund invests, he looks for growing companies whose stocks seem reasonably priced. He hunts for those whose top and bottom lines are expanding at least 5%, and that he thinks are likely to sustain that pace over time.

He would rather see revenues generated from within, from the introduction of new products, for example. Internal growth is preferable because it “tends to be more sustainable over the long term” than acquisitions, he said.

Ideally, Enlund wants stocks that are trading at a discount to their own history and the market. The companies in the fund’s portfolio trade for about 20.2 times projected 2002 earnings, compared to about 29 times this year’s earnings for the Standard & Poor’s 500-stock Index.

Enlund and the fund’s four other managers shop among companies with capitalizations of $5 billion or more, although they own some slightly smaller ones as well.

A recent addition to the portfolio is Newmont Mining (NEM), which Enlund likes because it is the largest gold producer in the world. In addition, the Denver-based company will do “very, very well” if gold prices keep heading up, he said. Enlund initially bought the stock late last year and added more in February for about $24 per share. It has been trading for about $28 lately.

Another new investment is Amer Power Conversion (APCC), which makes equipment to protect computers and other electric equipment against interruptions in power supplies. Enlund expects the company to benefit from increased use of the Internet and businesses’s reliance on computer networks. He bought the bulk of American Power Conversion’s shares in February for about $14-$15 each, but they have dropped since then. The stock now trades for about $13.

A favorite among the roughly 70 stocks in the fund, Enlund said, is Gentex Corp (GNTX). The company makes automatic rearview mirrors for automobiles and trucks, as well as fire protection products for commercial buildings. Gentex is appealing because it is beginning to supply luxury car lines while continuing while continuing to do business with manufacturers lower-priced models, Enlund said. Gentex makes up about 2% of the fund’s portfolio and is one of its ten largest holdings.

Software maker Microsoft Corp (MSFT) holds the top spot in the portfolio. Besides being the leader in its business, Microsoft has been stashing away “incredible amounts of cash,” Enlund said.

Country Growth tends to own companies in the ten industry sectors in the S&P 500. The weights are generally in line with the index. Energy and related companies, however, now account for about 11% of the fund’s holdings compared to nearly 7% for the index. Enlund said he has been favoring these stocks because he thinks they offer “probably some of the best fundamentals,” and “some of the best opportunities” for growth. Enlund reasons that oil prices will remain stable or rise in the near future, which will drive exploration and production.

Enlund likes Apache Corp (APA), an oil and natural gas company that has not only grown internally, he said, but whose “acquisition program has actually made sense.” He began buying the company last June and his average cost in the stock is about $49 per share. It closed today at $53.78.

Elsewhere in the sector, the fund has stakes in Exxon Mobil (XOM), Royal Dutch Petrol ADR (RD), Phillips Petroleum (P), ChevronTexaco Corp. (CVX), Schlumberger Ltd (SLB), Halliburton Co (HAL), and Diamond Offshore Drilling (DO).

The fund will scale back or eliminate a holding if a company’s financial underpinnings appear to be weakening, or if the managers identify what they believe is a better investment in a given industry. They will also sell if a stock reaches their target price. For instance, Enlund said he has cut back on Siebel Systems (SEBL), a software maker he began buying last fall, because the stock appreciated faster than he expected.

The managers, however, try to limit the fund’s turnover to 20%-25% per year in order to keep capital gains distributions to shareholders to a minimum, according to Enlund.

Looking at the big picture, Enlund said he is concerned that there appears to be nothing on the horizon to drive the overall stock market and the economy higher in the near term. Consumer spending may level off, and at the same time corporate earnings have been disappointing, he said.

Of stocks, Enlund said he thinks “we will be lucky to maintain current levels through the rest of the year.”