A New Pick for the Small-Cap Superstars Portfolio

As we discussed in our first article, Morningstar's Small-Cap Superstars Portfolio, one of the best and easiest ways to screen for new investment ideas is by monitoring the activity and holdings of successful fund managers. In this portfolio, we aim to combine some of the best ideas from our favorite small-cap fund managers with the highest-rated stocks of our fellow analysts here at Morningstar. (For breaking news and updates on our Small-Cap Superstars Portfolio, be sure to sign up for our free e-mail alerts.)

New Pick
After running our screens and analyzing the respective merits of our favorite managers' holdings, we've decided to add  International Speedway  to our portfolio. International Speedway is a leading promoter of motor sports in the U.S., with 12 tracks, including the renowned Daytona International Speedway. The company's management team mostly consists of the France family, which has direct ties to Nascar, the governing body of the most well-known racing circuits. Morningstar analyst Joel Bloomer believes the family's ties to Nascar ensure a steady stream of high-profile stock car races at its tracks.

With an extremely loyal fan base and lucrative long-term television contracts, we think that Nascar and hence International Speedway have excellent long-term prospects. At its recent price of about $44 per share, International Speedway is trading at an attractive valuation relative to Bloomer's $63 fair value estimate.

International Speedway is the first wide-moat firm to be added to our Small-Cap Superstars Portfolio. The company is owned by several of our favorite small-cap fund managers, including:

 Robert A. Mohn, Columbia Acorn USA 
 Charles T. Akre Jr., FBR Small Cap (FBRVX)
 Mario J. Gabelli, Gabelli Small Cap Growth (GCASX)
 Charles M. Royce, Pennsylvania Mutual (PENNX)
 W. Whitney George and Jay S. Kaplan, Royce Value (RYVFX)

Premium Members can learn more about these managers by reading Morningstar's Analyst Reports written by our mutual fund staff (just click on the fund name). If you're not a Premium Member, you can still read the reports by taking a free 14-day trial.

Performance Update
Since inception on Oct. 2, 2007, through Oct 29., the portfolio has delivered a 4.9% total return, versus a negative 1.2% for the Russell 2000. Needless to say, we're very happy with these results. The only stock down since inception is  Navigant Consulting . Its revenue growth remained solid in the third quarter, but the firm has been boosting head count at a faster rate, which caused its profit margins to drop precipitously. Analyst Brett Horn expects Navigant to grow into its cost base and produce 18% operating margins over the long run. Our fair value estimate on the stock has not changed.

Small-Cap Superstars Portfolio: Performance Update
Company Name (Purchase Date)	Shares	Cost ($)**	Value ($)	Total Ret (%)*	P/FV (%)***	Star Rating***
Amer Reprogr (ARP) (10/02/07)	525	9,987.95	10,815.00	8.3	68.7
Carter's (CRI) (10/02/07)	489	9,998.33	10,503.72	5.1	71.6
Cimarex  (10/02/07)	267	9,993.41	10,594.56	6.0	63.0
Navigant  (10/02/07)	733	9,996.41	9,507.01	-4.9	49.9
Whiting  (10/02/07)	212	9,989.67	10,985.84	10.0	89.3
Cash			--
Total*		49,965.77	52,406.13	4.9	66.7
* Through 10-29-2007. Total return for the portfolio is a time-weighted return. ** Based on closing price as of purchase date times number of shares plus $12.95 commission. *** As of 10-29-07

Small-Cap Superstars Portfolio Methodology
We assume that almost $10,000 will be invested in each of our initial positions, based on the closing price of each holding on the eve of the publication in which we first recommended the stock. We will also assume that each of our transactions costs us $12.95, a standard online commission rate. In calculating our portfolio's total return, we will use a time-weighted calculation, which is a common performance methodology applied by mutual funds.

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