(Business Edge columnist Gyle Konotopetz regularly profiles the top stock picks of some of Canada’s most accomplished investment pros.)

FEATURED PRO: Wayne Deans is a co-founder and partner with Vancouver-based Deans Knight Capital Management (www.deansknight.com). Deans manages the Northwest Equity Specialty Fund for the Northwest Fund Co. and the TDK Resource Fund. Deans’ investing style is to build portfolios of small, emerging companies with distinct competitive advantages and growing market share.

Fund Form: The Northwest Specialty Equity Fund has a one-year return of 45.6 per cent compared to the group average of 22.9 per cent and the TDK Resource Fund has a one-year return of 31.5 per cent compared to the group average of 36.2 per cent. Management Expense Ratio (MER): Northwest, 2.67 per cent; TDK, 2.50 per cent.

Deans’ Perspective: “We don’t pick sectors, we focus on individual stocks, but certain areas are becoming increasingly popular with the masses.

For example, oil and gas is in vogue. Now that the fundamentals of the oil and gas industry are better, it has gotten the attention of many more investors and you have to be more careful when looking for value in the oilpatch. You wouldn’t call some of the oil and gas companies cheap anymore, and mining is also in vogue.

“However, in a bland setting, you can still find not such good companies attracting fresh capital. We’re still finding some stocks we think are cheap – if you’re patient.”

FIRST STAR
* CFM Corporation (CFM-TSX)
* Recent Price: $9.70.
* 52-Week Range: $9.10-$12.
* Snapshot: CFM is a manufacturer and distributor of gas and wood-burning fireplaces, space-heating products, barbecues, and water- and air- purification products.
* CEO: Colin Adamson.
* Head Office: Mississauga, Ont. (2,731 employees).
* Vital Stats: Current Price/Earnings Ratio, 18.6; Revenue (last 12 mos), $568 million; 5-Yr Revenue Growth, 15.2 per cent; Earnings (last 12 mos), $19.2 million; 5-Yr Earnings Growth, 7.6 per cent; Market Cap, $390.28 million; Shares Outstanding, 40.24 million.
* Deans’ Perspective: “The company’s basic raw material for manufacturing its barbecues and fireplaces is steel, and steel prices have gone through the roof. As a result, the company’s margins are going to suffer in the short term because of high steel prices but I think the volumes in their business are still very strong. Long term, if steel prices moderate, the business will look way more profitable again, but you’re going to have to be patient. In the meantime, you get to buy into the business rather cheaply.”
* Web Watch: www.cfmcorp.com

SECOND STAR
* Shermag Inc. (SMG-TSX)
* Recent Price: $11.49.
* 52-Week Range: $10.21-$16.30.
* Snapshot: Shermag is a manufacturer and distributor of residential furniture made from veneer and solid wood, including upholstery furniture.
* CEO: Jeffrey Casselman.
* Head Office: Sherbrooke, Que. (8,000 employees).
* Vital Stats: Current Price/Earnings Ratio, 8.9; Revenue (last 12 mos), $217.9 million; 5-Yr Revenue Growth, 10.4 per cent; Earnings (last 12 mos), $17.8 million; 5-Yr Earnings Growth, 10 per cent; Market Cap, $153.02 million; Shares Outstanding, 13.32 million.
* Deans’ Perspective: “This company has had difficulties because of things beyond their control. The company has had labour problems in their furniture manufacturing facilities in Quebec, but I think those problems (i.e. strikes) are gradually getting solved. They’ve also been hampered by a strong Canadian dollar because they’re manufacturing in Canada and selling to the U.S., which hurts their margins. Furniture imports from China into the U.S. market have also put pressure on the margins.
“Because of some of these factors, it gives you an opportunity to buy the company cheaper than if things were all rosier. The company will adapt to some of these issues. They should be able to adapt to a strong dollar, solve their labour problems and they might be able to do some of their manufacturing in China to lower labour costs. The key is that they have a strong name, a strong franchise and strong distribution in the U.S. Those are the important things long term for us.”
* Web Watch: www.shermag.com

THIRD STAR
* Velan Inc. (VLN-TSX)
* Recent Price: $13.50.
* 52-Week Range: $10.32-$14.25.
* Snapshot: Velan designs and manufactures various types of valves with a primary focus on the oil and gas industry.
* CEO: A.K. Velan.
* Head Office: Montreal.
* Vital Stats: Revenue (last 12 mos), $257.8 million; 5-Yr Revenue Growth, -3.5 per cent; Earnings/Loss (last 12 mos), $4.6 million Loss; Market Cap, $301.31 million; Shares Outstanding, 22.32 million; Dividend Yield, 2.10 per cent.
* Deans’ Perspective: “This stock is up from its lows of the last three to six months, but in our opinion it’s still a very cheap stock. The company has been hampered by competitive factors beyond their control such as the strong (Canadian) dollar, which hurts them because they report in Canadian dollars and sell in U.S. dollars.
“In spite of all that, they’ve been in business for 50 years, I don’t think they’ve ever had a fiscal year where they’ve lost money, they’re consistently cash-flow positive and they run the business in a lean fashion. In our opinion, things are more likely to get better than worse from here.”
* Web Watch: www.velan.com

Deans’ Edge Record (past 12 mos): +6.9 per cent. Best Pick: Canfor Corporation (CFP-TSX) +57.5 per cent. Worst Pick: Petrobank Energy (PBG-TSX) -21.8 per cent.

Disclosure: The featured stocks are held in funds managed by Deans.