Quick Take: With a total return of 12.8% in the first quarter this year, CornerCap Group of Funds:Small Cap Value Fund (CSCVX) was the top performer in the small cap value category. In 2001, the fund returned 23.6%, versus 14.1% for the peer group. The fund’s longer-term record is also attractive. For the three years ended in March, CornerCap Small Cap Value rose 20.2%, versus 18.7% for the average small cap value fund.

Managers Thomas Quinn and Richard Bean look for inexpensive stocks of companies they think can expand their bottom lines. Two sectors where they have been finding stocks of companies they like: health care and capital goods.

The Full Interview:

When the market is placing its bets in one place, Thomas Quinn and Richard Bean are likely to be looking elsewhere.

“We’re very contrarian-oriented,” Quinn said of himself and his colleague, who look for undervalued stocks that other investors are shunning for the CornerCap Small Cap Value Fund.

For some of their latest investments, the managers have been shopping among health care stocks because they say stock prices in the sector seem beaten down more than earnings prospects merit.

A recent addition to the fund is Syncor Intl (SCOR), which makes products for diagnosing and treating disease. In addition to an attractive price-to-earnings ratio of 17 times projected 2002 earnings, the company looks good because of its niche position as a provider of radiopharmacy services, the managers say. They originally bought the stock in late February at $24.80 per share; it closed today at $33.21.

A few weeks before investing in Syncor, the managers bought a stake in Haemonetics Corp (HAE), which makes automated systems for collecting blood. The stock’s P/E ratio of about 25 is one of the highest in the portfolio, but it also has been one of the fund’s top performers lately, Bean noted. Haemonetics’s shares were priced at $28 when the managers first purchased them. They have have since risen to about $33.

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.”