FUND Q+A-Healthcare, tech picks attractive for Croft Value Fund

NEW YORK, April 15 (Reuters) - The hefty market rally over the last year has made it tougher to find good, cheap stocks but the opportunities are still there, said Russell Croft, portfolio manager of Croft-Leominster's Croft Value Fund.

The search for value has led the fund to some healthcare shares that have been held down by uncertainty over healthcare reform, as well as technology companies that were too expensive in the past.

"It's harder to find a cheap stock that might be misunderstood right now," said Croft, vice president of Croft-Leominster, in Baltimore, Maryland. "Everything looked great if you weren't scared to death last March 9."

One such stock Croft likes is Cisco Systems (CSCO.O), which has visible long-term growth and will benefit from an economic recovery, Croft said.

Founded in 1995, the fund has $250 million in assets under management and is up about 8 percent year to date. The fund had a 38 percent return in 2009 after losing about 40 percent in 2008's market rout.

The S&P 500 .SPX is up 8.8 percent for the year so far.

Following is a question-and-answer interview with Croft.

WHAT DO THE CORPORATE BUYBACKS TELL YOU ABOUT HOW COMPANIES ARE DOING?

Overall, this use of corporate cash is a great story over how the market is feeling right now ... It's a way to say, 'Hey, look, my stock is cheap. We're undervalued. This is a better return.'

If companies buy back stock, increase dividends or purchase other companies, that's only going to help GDP growth and the stock market.

WHAT IS YOUR OUTLOOK FOR THE S&P 500 FOR THE REST OF 2010?

Corporate earnings have been strong, and if they continue to be strong, these valuations make a lot of sense. We could see the stock market moving up from these levels, but I just think it's more of a stock picker's market. You can't just pick a cheap sector. Overall, the market is fairly valued in the sense that it's not overvalued and it's not extremely cheap. You have to pick your battles.

WHAT STOCKS DO YOU LIKE RIGHT NOW?

We like industrials, they've worked well and I think that's an area where you could see earnings numbers need to come up some. Estimates for those haven't been raised like a lot of other sectors ... some management teams have been cautious when they're looking at earnings forecasts, and I think they could be higher.

We've always been in some healthcare, but it's become an increasing position due to the contrarian nature (of the uncertainty around recent legislation).

The demographic trends are so important. Companies like Baxter International Inc (BAX.N), Becton Dickinson & Co (BDX.N) are necessary parts of healthcare where they have consumable products. They're the companies that can grow earnings and they're trading at 12 and 13 times earnings. If there's more insured going in there, they need more syringes, more catheters.

Lowe's Cos Inc (LOW.N) trades at 15 times 2011 earnings, but that's a really depressed number in our opinion. They have a big store base, but when things get better, they're not going to cannibalize themselves. They're still waiting for the company to grow. I think you get a double-kicker there, because with Lowe's, it's a chicken way to play the housing side because they trade with how the housing numbers come in.

WHAT STOCKS HAVE LAGGED?

Pfizer Inc (PFE.N) -- the earnings have been pretty flat the last couple years and people want to see how they're going to grow. In 2012, some of the generic issues should be resolved, and with the Wyeth acquisition, Wyeth had a much better generic profile.

Another one that hasn't done as well is Ace Ltd (ACE.N). That's a great global franchise, great management, it's cheap on book value. It's one of the companies that in 2008 was the best performer, so everyone's looking for where they can go now. You get more bang for your buck other places, but I think that stock is a great value. (Reporting by Leah Schnurr; Editing by Jan Paschal)