Most socially screened funds are bland performers. Not so Ave Maria Catholic Values (symbol AVEMX; 866-283-6274). Over the past three years, to August 2, it returned an annualized 10%, trouncing the stock market by 11 percentage points per year. Manager George Schwartz looks for companies with little debt and strong earnings growth. But, reflecting the fund's religious mandate, he won't invest in companies whose products facilitate abortions, or those that are involved in pornography or that offer benefits to unmarried employees' partners. Among his top picks:
Christopher & Banks (CBK). This retailer of women's clothing went "berserk" on sweaters, ordering way too many, says Schwartz. The result: It had to cut prices to move inventory. That led to subpar earnings in the past two quarters and a nearly 50% decline in the stock since last fall. The sweater situation is "under control now," says Schwartz, "but the market is not giving the company credit for that yet." At $15, the stock sells at 14 times the $1.04 per share that analysts, on average, expect the company to earn in the fiscal year ending next February, according to Thomson First Call.
Harley-Davidson (HDI). Bikers and conservative Catholics might seem an odd match, but Schwartz says it isn't a sin to worship a Harley: "The customer loyalty for this product is unbelievable." Harley is known for big, shiny bikes that can easily cost $20,000. But as its customer base ages, Harley is reaching out to younger buyers with its Buell line of moderately priced bikes and plenty of financing options. Schwartz also expects the company to increase its annual dividend from 40 cents to 50 cents a share. The stock, at $58, sells for 20 times 2004 profit estimates of $2.95 per share.
Polaris Industries (PII). Schwartz calls this maker of all-terrain vehicles, snowmobiles and personal watercraft "a money machine." It has a return on equity (a measure of profitability) of 30% and little debt. He sees Polaris as a good way to tap in to the spending of retiring baby-boomers and active seniors. The company, he adds, has a "terrific dealer network and is tough on cost controls." Analysts see earnings of $2.77 per share this year. The stock, at $46, sells for 17 times that estimate.
Pulte Homes (PHM). Pulte, one of the nation's largest builders, should be able to weather higher interest rates without much trouble, Schwartz believes. The company, which has a presence in 44 markets, builds starter homes, retirement communities and luxury residences. As land becomes more expensive, it will be increasingly difficult for small builders to compete against Pulte and other giants. Schwartz estimates that Pulte's share of the market, now 6%, will nearly double over the next three to five years. The stock, at $57, sells at just seven times expected 2004 earnings of $7.82 per share. "It is a very cheap stock," says Schwartz.
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