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The first thing you notice in Peter Ricchiuti's office is the stuffed alligator head, its mouth wide open. Ricchiuti, a finance professor at Tulane University, in New Orleans, bagged the gator while hunting in the bayou. A former stock analyst, he now trains his students to track more elusive prey: small companies with untapped growth potential. More specifically, students hunt for these companies -- "stocks under rocks," Ricchiuti calls them -- in the nooks of the Deep South.
Ricchiuti's program is a training ground for investment analysts and money managers. Each year, he picks 46 companies and assigns his students, both undergrads and MBA candidates working in groups of three or four, to research them thoroughly. Their output, called Burkenroad Reports, is available free at www.burkenroad.org.
Fund angle
The research was good enough to persuade a small Mississippi bank to launch a mutual fund that makes liberal use of the students' picks. Over the past three years to July 1, Hancock Horizon Burkenroad delivered a respectable annualized return of 14%, precisely the same as the average gain of all funds that focus on small, undervalued companies. Burkenroad research is "a great starting point" for the $11-million fund's picks, says manager David Lundgren Jr. Recently, the fund held 57 stocks, 27 of them covered by Burkenroad analysts.
The student analysts work in a glass-walled, high-tech headquarters worthy of any big research operation. Inside, a wall-to-wall ticker relays stock prices for the companies Burkenroad analysts follow. There are Bloomberg terminals and large-screen TVs tuned to CNBC.
But the Burkenroadies aren't shut-ins. They're encouraged to rack up face time with executives of the companies they follow. "We get to walk in and meet with the CEO of the company, talk to the CFO and get a tour," says Rob Tatum, 25, a recent MBA grad. And despite the youthfulness of the analysts, company officials take them seriously. The students "don't take shortcuts," says Al Petrie, of Energy Partners Ltd., an exploration company headquartered in New Orleans.
Dixie picks
Burkenroad students follow companies that are obscure, to put it mildly. Few pros cover the stocks, and they typically have a market value below $500 million. All are based in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi or Texas.
One of Burkenroad's biggest coups was a call on Hibbett Sporting Goods. In 2002, the students were among the first analysts to follow the Birmingham, Ala., retailer. Burkenroad rated the stock a buy and its shares have since soared from $11, adjusted for splits, to $36 in mid July. But the students didn't get the story entirely right. Their most recent report, from November 2004, suggested that the stock was fully valued. At the time, the shares traded for just less than $25. Intrigued by Hancock Horizon Burkenroad (symbol HYBUX; 800-738-2625)? Its D shares levy no sales charge but carry above-average annual fees of 1.65%. Depending on your perspective, the fund is either a gimmick or a promising vehicle for cashing in on undiscovered stocks. And if you pick your own stocks, visit the Burkenroad Web site for ideas.
Research: Amy Esbenshade Hebert
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