"I think things will be OK in 2011 and I don't see a double-dip recession," he says. "But economic growth isn't likely to go above 3%."
Still, he sees improved long-term profitability for companies such as Infinity Property & Casualty, which specializes in automobile insurance for higher-risk customers. "Non-standard policies will be one of the first areas to come back when the property/casualty sector recovers," he says. "And Infinity has a lot of the qualities we like, including strong management, strong cash flow and the potential to capitalize on those strengths when the economic recovery solidifies." The company has also repurchased a large number of its shares, and its publicly traded stock has fallen from 21 million shares in 2005 to 13.5 million shares today.
While manufacturing poles for utility, lighting and wireless communications equipment may sound like a mundane business, Valmont Electric has a strong grip on the market as well as a backlog of transmission projects in the works. Its volume and profit margins should tick up over the next couple of years as demand for electricity increases. The company, which also makes irrigation equipment for agricultural applications, is growing sales as farmers increase their investment in new equipment to take advantage of higher crop prices. Like other companies in the portfolio, Valmont derives a significant portion of its revenue from countries outside the U.S., which will allow it to take advantage of growth in emerging markets.
In the health-care sector, the fund owns a number of names that will benefit from increased coverage of the population under health-care reform. Amerigroup, a health maintenance organization that serves Medicaid recipients, should see business expand as near-universal health care mandates increase the number of people who are eligible to use its facilities. LifePoint Hospitals, another company active in the Medicaid market, will be able to pare bad debt expenses and improve profitability as the government steps in to help cover the uninsured.
More recent additions to the portfolio include athletic apparel maker Under Armour. McCrickard first bought the stock in the spring of 2010, when it was trading at valuations comparable to Nike, its slower-growing and substantially larger competitor. Since then, the stock has risen and trades at a significant premium to Nike. Another newer holding, Kilroy Realty, has well-located office and industrial properties in California. McCrickard believes that the company's attractive valuation, high-quality portfolio and dividend yield are key attractions as investors wait for the real estate market to improve.