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Markets

A Hot Investor's 3 Top Picks

His investments have returned 30% a year for 20 years, so listen up.

When Bob Auer talks stocks, it pays to listen. He seeks "wildly growing" companies selling at cheap prices. To be more specific, he'll look at a company only if its profits are expanding at a minimum annual clip of 25% and its stock sells for 12 times earnings or less.

By now you're probably wondering, Who is Bob Auer? He is the co-manager (along with his father, Bryan) of Auer Growth fund (symbol AUERX). Although the fund is less than a year old, the Auers have a remarkable long-term record. For the 20-year period through the third quarter of 2007, the team earned an astonishing 30% annualized managing their personal accounts. Over the same period, Standard & Poor's 500-stock index returned 10% annualized. The Auers' returns are audited, and the Securities and Exchange Commission has okayed their inclusion in Auer Growth's prospectus.

What does Bob Auer like now? Let's start with molybdenum, probably the most important commodity you've never heard of. The toughest, highest-grade steel can't be made without molybdenum; it's also used in chemical processing and other heavy-duty industries, as well as in energy production. Auer favors Thompson Creek Metals (TC), a pure play on the metal. The company mines and roasts the stuff at a cost of $6 to $10 per pound, then sells it for whatever the market will bear (recently $32 per pound).

The Toronto-based company is unabashed about its prospects. Thompson sees production of molybdenum expanding from 16 million pounds in 2007 to 24 million in 2008, and to 34 million in 2009. Chief executive Kevin Loughrey says Thompson has one billion pounds of the metal in reserves in the ground. The stock traded at $23 in mid May, or nine times the $2.53 per share that analyst Lawrence Smith, of Scotia Capital, expects Thompson to earn in 2008.

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Shares of ATP Oil & Gas are in a rut. At $38, they're down 34% from their high in late October 2007. The Houston-based company, which has just 66 employees, excels at developing difficult offshore sites in the Gulf of Mexico and the North Sea; it finds and snatches up contracts to develop tracts with proven reserves that the original owners never exploited.

ATP certainly meets Auer's criteria for wild growth. The company brought in $608 million in revenues in 2007, a 45% surge from 2006, which topped 2005 figures by 186%. Granted, there was an added incentive in 2006: As a reward for meeting aggressive production goals, ATP bought each of its employees a new Volvo.

Not one to let morale slip, chairman T. Paul Bulmahn says ATP will pay every employee's mortgage for a year if the company reduces debt by $600 million and meets certain development goals by mid 2009. The company carries a heavy debt load, but "the reserves are there, the assets are there, and it's a booming market," says analyst Philip McPherson, of Global Hunter Securities. The stock (ATPG) trades at 11 times the $3.44 per share that analysts, on average, expect ATP to earn in 2008.

Selling computers over the Web, through the mail and via telemarketing is a tough way to make a buck. In fact, a dollar is about all PC Mall (MALL) earns for every $100 it does in sales. But the company has invested aggressively in building its sales force and increasing its market share over the past few years, and "profits are just starting to kick in," Auer says. Earnings for the Torrance, Cal., company more than doubled in 2007, to 90 cents a share. Profits in the first quarter of 2008 jumped 50% from the same period in 2007. At $13, PC Mall shares trade for 12 times estimated 2008 earnings per share of $1.11.