Nov. 12, 2003 — What kind of stocks does Hodges Fund (HDPMX) buy?
“It’s a blend that would include almost anything we think is likely to go up in the next 18 months,” says Don Hodges, who manages the portfolio with his son, Craig.
What size companies does it invest in?
“We look at the whole universe,” the elder Hodges says. “We just look for opportunity wherever we find it.”
That go anywhere, do anything approach to investing hasn’t hurt the fund’s returns lately. After losing 26.3% in 2002, the $32.1 million fund rebounded to gain 67.8% this year through October, outpacing its small-cap growth fund peers, which were up 39.1%
Generally speaking, the fund’s holdings fall into three categories. The first is made up of companies that have consistently rung up strong profits and sales over the long run, and whose stocks trade at relatively high multiples.
Retailers Home Depot (HD) and Wal-Mart Stores (WMT) are in this group. In addition to their steady growth, both dominate their competitors, notes Hodges, who favors industry leaders.
Next, the managers hunt for cheap stocks that they think have loads of value. Hodges cites Texas Pac Ld Tr (TPL) as typical of these kinds of investments. The trust owns more than a million acres of land in Texas that was previously the property of the Texas and Pacific Railway Co. It makes money by selling or leasing the land, from royalties on the more than 3,000 oil and natural gas wells on it, and from interest on investments.
The trust is attractive, Hodges says, because it uses the money it makes to buy back its shares. Hodges thinks its stock can probably double in price.