Hodges Capital is a Dallas-based investment advisory firm that manages five mutual funds as well as separate accounts for institutions and individuals. The firm was founded in 1989.
1. You started your Pure Contrarian mutual fund last September, focusing on stocks that have good potential but are currently ignored on Wall Street. How’s it doing?
It’s still very small, with about $9.2 million in assets. Through early July it was down 2.85 percent for the year, compared to the Dow, which was down 7.43 percent, and the S&P 500, which was down 8.30 percent.
2. There are a number of Dallas or Texas companies among the 52 stocks in your contrarian fund, including A.H. Belo. Don’t you think, like many people, that newspapers are dying?
We first bought Belo about a year ago, and we now own 5 percent of the company (between all our holdings). The delivery model is probably changing pretty dramatically—I subscribe to the Dallas Morning News on my iPad, for example—but I think there’s always going to be a demand for content. Belo also owns a lot of real estate in Dallas and has a good book value. They’ve paid down debt and have a large pension liability, but I think it’s a good holding.
3. You also own Pulte, the homebuilding company, which bought Dallas’ Centex and has a large presence here. Why do you like Pulte?
It’s a well-run company that’s out of favor now, but eventually homebuilding will come back. The builders that do well after surviving this [housing downturn] won’t be the mom-and-pops or the ones that build 100 houses a year, but the larger ones that have lots of land, build more cheaply, and market effectively. Builders like Pulte will end up with greater market share down the road.
4. Other Texas stocks in your contrarian fund include Southwest Airlines, Commercial Metals, and Whole Foods Market. Why Whole Foods?
They’re one of the better-run food companies in the whole country, and I like their approach to the grocery business. There’s a little bit of a perception that they’re high-priced, but they’re [successfully attacking] that perception. They also have good corporate governance; the CEO pays himself a very modest salary.
5. Do you think we’ll wind up in a “double-dip” recession?
I don’t believe we will, but I think it will be nip and tuck for a while. The problem we’ve got now is shareholder confidence. The negativity in the country has to do with disenchantment with both the Republicans and the Democrats, the administration, the oil spill in the Gulf, the events in Europe—all these are just frightening to individuals. People are overwhelmed right now with negative news, and that has a significant effect on investor attitudes.
