If the names of the companies in the SAFECO Small Company Value Fund (SFSCX) don’t sound familiar, it’s not surprising. Greg Elsen, the fund’s manager since its inception in 1996, hunts for undervalued stocks of little known companies below Wall Street’s radar screen.
Classified as a small-cap blend fund by Standard & Poor’s, the fund has outpaced similar offerings for more than a year. It was up 10.1% this year through April, and returned 18.2% in 2001. The fund’s peers gained 2.5% and lost 3.2% in those periods.
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The investments Greg Elsen focuses on are often overlooked by others, and that’s fine with him.
Elsen sets his sights on “obscure” companies, which he defines as those whose stocks are underpriced because they aren’t widely owned by institutions or individuals.
Many of the businesses that make their way into Safeco’s Small Company Value fund also are not tracked by the big brokerage houses. “That’s not by design,” Elsen says. “It just works out that way.”
Of course, buying things that fly below most analysts’ radar screens can be advantageous, Elsen agrees, because when Wall Street starts touting them they can attract a lot of money and “run very fast.”
When it comes to valuations, Elsen wants stocks that are trading for less than their peers and the overall market, but that have the potential to become growth investments.
Although he prefers companies with strong balance sheets, Elsen says he is willing to own those with less-than-pristine balance sheets if he thinks their prospects are good.
For example, Rent-Way Inc (RWY), the fund’s No. 1 holding, has a heavy debt load, but “it’s a turnaround in progress,” Elsen says.
Rent-Way, based in Erie, Pa., leases computers, home entertainment equipment, furniture, appliances and jewelry to customers who agree to eventually buy the merchandise. Elsen says he began buying the stock in late 2000, after it got battered when the company disclosed errors in its accounting.