Brian Peery, portfolio manager for Hennessy Funds Cornerstone Mid Cap 30 Fund (HFMDX), describes his “rigorous and disciplined” process for picking the 30 stocks in the fund.

To begin, the stocks must have market caps between $1 billion and $10 billion. Second, he says in this video interview, his team is looking for a price-to-sales ratios below 1.5, because “we won’t pay more than $1.50 for $1 in sales.”

While the process includes looking for midcaps that have increased their earnings, he says “we’re worried more about year-over-year rather than quarterly fluctuations” in earnings, since “we’re looking at the longer picture.”