Scott Barbee of Aegis Value Fund

Although the fund’s performance has at times led investors to flood it with cash, the team won’t rush to put the money into stocks and will hoard dollars if it can’t identify enough investments it deems suitable, Barbee says.

The market rally that began this spring has caused the fund’s assets to swell to about $260 million from $150 million five months ago, Barbee notes. At the same time, however, investment opportunities have “really dried up,” so the fund has doubled its cash allocation to 30% since March, he says. Those assets include money invested in the fund by Barbee and his co-managers.

One stock the manager’s have been adding to lately is Amer Pacific (APFC), a specialty chemical maker that produces a component of fuel for booster missiles and rockets, including those used in the space shuttle program.

The stock, which ranks fifth in the portfolio, got beaten down after the accident that claimed the Columbia in February cast doubt on the future of the program. Barbee, though, thinks flights will resume next year, which would put American Pacific in position to benefit if they do. The fund increased its stake in the company in late June, he says.

The fund has also been buying more shares recently of Standard Commercial (STW), its top stock. The company buys and processes tobacco that it sells to cigarette makers.

“In a market where everything else has kind of run up, these kind of companies have been very stable cash generators,” Barbee says, adding that they look “very solid.”

The fund, Barbee says, upped its stake in Standard in the second quarter, when tobacco-related stocks weakened because of litigation confronting Altria Group (MO). Altria’s Philip Morris USA unit had been ordered to post a bond while the subsidiary appealed a $10.1 billion verdict against it in a class-action suit related to its “light” cigarettes.

Barbee, though, does not see the legal problems affecting suppliers like Standard.

That Barbee is willing to stick with a troubled company if he thinks it has potential is illustrated by the fund’s investment in Luby`s Inc (LUB), a restaurant chain that has been having financial difficulties and that Barbee cites as one of the stocks that hurt the fund’s performance earlier this year.

Even if Luby’s is forced to declare bankruptcy, the value of its real estate alone is “tremendous,” and its stock, which has been recovering, is still trading at a “significant” discount to the worth of those assets, Barbee says. He is also confident that Chris Pappas, Luby’s president and chief executive officer, can turn the company around.