Thomas Quinn and Richard Bean of CornerCap Small C

Another new investment, Quanta Services (PWR), has appreciated more than 42% since it was purchased in early February, Quinn and Bean said. Investors, they explained, bid up shares of Quanta, an oil and telecommunications services company, as it resisted a takeover bid by Aquila Inc`A` (ILA), which owns 38% stake in the company.

Quinn and Bean look for stocks with market caps of less than $2 billion, focusing first on stocks that strike them as inexpensive compared to earnings and cash flow. The stocks in the portfolio are currently trading at about 14 times projected 2002 earnings, they said.

Next, they hunt for companies they think can increase earnings over the short term (the next two quarters) and the long term (three-to-five years). They also like stocks that beat Wall Street estimates. “We want something that’s got the highest projected growth, with the lowest current multiples,” Quinn said.

The $16-million fund typically holds some 45 stocks and allocates approximately equal weights to each, according to Quinn. Lately, the managers said they have been finding the kind of stocks they like among capital goods companies, which make up 20% of CornerCap Small Cap Value’s holdings.

Investments in the sector include Moog Inc. (MOG.A, MOG.B), which makes motion and fluid control systems for aircraft, aerospace and industrial markets. The fund also has a stake in Manitowoc Company (MTW), which produces ice machines, ice and beverage dispensers and refrigeration products, as well as cranes and equipment for repairing and rebuilding ships.

Consumer companies that tend to rise and fall in tandem with the economy make up another 19% of the portfolio. The fund owns companies such as TBC Corp (TBCC), which sells tires; ArvinMeritor Inc (ARM), which makes components for trucks; and audio equipment maker Harman Intl (HAR).

Although value-oriented mutual funds have been popular with investors for the past two years, Quinn said he realizes they will eventually go out of favor. “We’re not going to change our stripes,” he said, “regardless of what the market decides to do, or investors decide to do.”