Paul Rasplicka of AIM Small Cap Equity Fund

Another addition to the portfolio in November was auto parts retailer Pep Boys-Manny,Mo,Jack (PBY). Rasplicka says he was drawn to the stock because it carries a price-to-earnings multiple of 20, while the company’s bottom line is expected to grow by 41% in fiscal 2005. Rasplicka says he also likes the company because it’s adding new products, including brand name tires, to its stores, which should bring in more shoppers and boost sales.

Earlier, in April, AIM Small Cap Equity bought a stake in Sierra Health Services (SIE), a managed health care company. At the time, the stock’s P/E of 8 struck Rasplicka as very undervalued. The multiple has ticked up to 10 recently, but the stock continues to look good because Sierra’s earnings have risen “dramatically,” and at the same time the company has been generating lots of cash that it’s used to buy back its stock, Rasplicka says.

Rasplicka says he also likes Las Vegas-based Sierra because it is the dominant player in its field in that area, which is itself growing, giving Sierra an opportunity to add to its membership base.

The fund’s No. 1 stock is investment banker Friedman Billings Ramsey Group `A` (FBR), which, Rasplicka notes, sports an attractive dividend yield of 6.3%.

Industrial companies, which Rasplicka describes as an eclectic mix of things like manufacturers and transportation companies, account for the biggest piece of the fund’s assets — 21%. The fund manager sees these businesses benefitting if the economy continues recovering.

Among these stocks, the best performer this year has been Wabash National (WNC), a truck trailer maker whose stock has doubled since he bought it in June, Rasplicka says.

Elsewhere in the group, Rasplicka cites Landstar System (LSTR) as a winner. The company provides transportation services to shippers, primarily in the U.S.

The fund’s industrial holdings, as Rasplicka defines them, also include Pacer International (PACR), a trucking firm; waste hauler Casella Waste Sys `A` (CWST); and prison operator Corrections Corp. of America (CXW).

Just as Rasplicka hunts for cheap stocks, he will trim a holding or sell it outright if it becomes expensive. For example, in October, he unloaded Transaction Sys Architects`A` (TSAI), which makes software for electronic commerce, because, he says, its shares had run up, but he saw no evidence that the business was “getting dramatically better.”

Deteriorating or suspect financial fundamentals can also lead Rasplicka to reject a stock. That, he explains, was the problem with InterVideo Inc. (IVII) a maker of software for producing and editing DVDs, which he sold early last month after buying the stock in its initial public offering in July. Results posted by InterVideo in its first quarter as a publicly traded company failed to meet Wall Street estimates, “which is a pretty big sin for a new company,” Rasplicka says.