August/September Picks

Separate Account: Evermore Global Value Strategy
This separate account is from a new firm started by David Marcus, who had successful stints at Mutual Series in the 1990s and more recently at a hedge fund and a family trust. Its strategy and manager are proven. Marcus and comanager Jae Chung, formerly of Davis Advisors, are contrarians, but they're hardly cigar-butt investors. They look for cheap firms where they see near-term catalysts to unlock value, including mergers, spinoffs, restructurings, etc. They invest across the capital structure and have a strong record with distressed debt and convertible bonds. This may not wedge perfectly into one section of the Morningstar Style Box, but it holds merit for those valuing diversification. (Michael Breen)

Exchange-Traded Fund: JPMorgan Alerian MLP Index ETN AMJ
Investors seeking higher-yielding equities not well-represented in standard indexes or tactical investors eyeing midstream energy could use this fund to invest in pipeline companies through publicly traded master limited partnership units concentrated in transporting natural gas and petroleum liquids such as oil. Energy MLPs pay current yields exceeding those of most utilities, and investors will enjoy lower volatility because most revenue is tied to volume, making the profits generally more stable than underlying commodity prices. AMJ tracks the small-cap-tilted Alerian MLP Index of 50 prominent energy MLPs, and the index is screened for the highest yields. (Bob Goldsborough)

Mutual Fund: Artisan International ARTIX
This fine fund is down but far from out. It's posted a double-digit loss so far in 2010 and lags nearly all its rivals. It's got a much bigger stake in Europe than most and has been stung by stakes in such banks as HSBC HBC and BNP Paribas BNP, which have been hit by the European debt crisis. But manager Mark Yockey isn't panicking. He thinks both are market leaders with strong balance sheets that will come out of the most recent crisis even stronger. As indicated by the fund's strong long-term record, Yockey's been right much more than not over time. This fund remains a winner. (Michael Breen)PAGEBREAK

Stock: Molson Coors Brewing Company TAP
Molson Coors owns a portfolio of well-known brands with broad enough distribution to allow it to generate excess returns on invested capital and give it a narrow economic moat. The firm has built a reputation for executing cost-saving measures effectively, and we think the MillerCoors joint venture will allow the company to extract further value from its operations.

However, given its limited opportunities to grow volume, Molson Coors' margin expansion cannot continue indefinitely, and the firm will be at a crossroads when the current round of cost cuts have been implemented.

Our fair value estimate for Molson Coors is $59 per share, which implies forward fiscal-year price/earnings of 17 times, enterprise value/EBITDA of 11 times, and a free-cash-flow yield of 6.8%. With pricing and volume fairly stable, the elimination of duplicate costs at MillerCoors is the key driver of our valuation. (Haywood Kelly)

Hindsight: June/July 2009
Our June/July 2009 picks have been solid. Separate account Delafield Value has bragging rights. It's gained 26.3% since we recommended it, doubling the S&P 500's performance. Managers Vince Sellechia and his team continue to excel by sticking with what they know best: industrials. ETF Vanguard Dividend Appreciation VIG and mutual fund Third Avenue Small Cap TASCX have been solid rather than spectacular. They've matched the overall market's gain but lag their respective categories by a bit. The former's high-quality bias hasn't helped it recently but has it looking well positioned going forward. The latter continues to get way off the beaten path in its search for value. That can put it out of step at times, but the fund has always delivered over time. Becton Dickson BDX, our stock pick, is the lone laggard. It's slightly in the red the past year. The maker of surgical tools has maintained solid operational metrics, but its valuations have dropped in a skittish market. Morningstar's equity analysts say it's set to reap the benefits of earlier investments and innovations and trades at a 30% discount to its fair value. (Michael Breen)