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[xanadu90]

BQI:
Energy Manager Buys With an Eye on U.S. Growth
By Gregg Greenberg
TheStreet.com Staff Reporter
12/5/2007 12:03 PM EST
URL: http://www.thestreet.com/newsanalysis/assetmanagers/10392999.html

The energy story isn't over by a long shot.

"Any long-term portfolio must have a significant energy stake," says Kent Croft, co-portfolio manager of the Croft Value fund. "We have entered a new era of higher energy prices primarily for three reasons: geopolitical risk, supply constraints and global growth."

Croft's multi-cap, go-anywhere fund has certainly benefited from the run-up in energy prices. Almost 15% of the $30 million portfolio is in energy stocks. The fund is up nearly 17% year to date, 11 percentage points better than the S&P 500. It has returned an average of 17.5% annually over the past five years, 5.6 percentage points better than the index.

In order to limit geopolitical risk, Croft prefers to own North American names like Petrobank Energy and Resources, an oil and gas exploration and production company with operations in Canada, and Oil Sands Quest (BQI), which has exploration rights to approximately 700,000 acres, primarily in Saskatchewan.

Edit Xanadu: Petrobank (PBG.TO CAD 51.89 PBEGF.PK USD 51.00) has the THAI-oil extraction method, and lately made a reservation bordering with BQI's territory in Sask.

He has also owned Houston-based Ultra Petroleum (UPL) since the natural gas company's market cap was less than $500 million. Now it's close to $10 billion and Croft says it will head higher once the Rockies Express Pipeline opens in early 2008.

"We look for catalysts like the Rockies Express Pipeline when we search for stocks," says Croft. "We also look for contrarian plays and, of course, growth at a discount because we are a value fund."

Aside from getting into energy stocks like Ultra before the crowd, Croft -- who manages the fund with his father and brother -- was also early with his infrastructure investments. The fund has scored big-time with its investments in Foster Wheeler (FWLT) and Terex (TEX) .

Right now Croft is partial to General Cable (BGC) because of its electrical transmission business. "It's well known that the U.S. has an inadequate grid system, and General Cable will benefit when it gets upgraded."

Croft is also looking at companies levered to -- believe it or not -- U.S. growth.

"Right now everybody is touting companies with strong international sales. We were there two years ago. And as contrarians, we believe the smart thing is to look at what everybody else is leaving behind. U.S. companies that sell their goods domestically are getting cheap. The U.S. will slow, but eventually it will pick up again. And we'll be there."