(Every week, Business Edge writer Gyle Konotopetz profiles the top three stock picks of one of Canada’s most successful investment pros.)

FEATURED PRO: Patrick Slater, vice-president and portfolio manager, Calgary-based QVGD Investors (www.qvgd.com).

Slater’s Current Strategy:

“I am cautiously optimistic, particularly on small caps given their historical record of out-performance coming out of an economic slowdown or recession. In the short term, I feel the sharp rally from September lows to early December has been over-done. Bullishness is almost rampant again, complacency is high and the rally has been driven more by liquidity than by company fundamentals, particularly earnings power. We continue to emphasize companies with strong and sustainable revenue, cash flow and earnings. Be cautious and buy patiently on pullbacks.”

(The following are part of the QVGD’s Clarington Canadian Small Cap Fund and Ethical Special Equity Fund, managed by Slater).

First Star

* MFP Financial Services (MFP-TSE)
* Recent Price: $8.08.
* Year Range: $6.97-$13.50.
* Slater’s 12-month Target: $13.50.
* Snapshot: MFP is a financial services company engaged primarily in the leasing of technology equipment.
* CEO: Peter Wolfraim.
* Head Office: Mississauga, Ont. (230 employees).
* Vital Stats: Price/Earnings Ratio, 5.0; Revenue (last 12 mos), $331.9 million; Profit (last 12 mos), $16.9 million; Market Cap, $80.03 million; Shares Outstanding, 9.90 million; Dividend Yield, 7.4%.
* Slater’s Comment: “The leasing of technology equipment is obviously a difficult space to be in over the past year or so, but most of the negative news has already been reflected in the stock price. Management is experienced, knowledgeable and candid in its communications with shareholders. The stock trades at a substantial discount to book value. The risks (a lawsuit with Waterloo, Ont., and an outstanding tax claim by Revenue Canada) are well known by the market and fully reflected in the stock price.”
* Slater’s Risk Rating: Low.
* Web watch: www.mfp.org

Second Star
* Danier Leather (DL-TSE)
* Recent Price: $11.70.
* Year Range: $8.75-$12.50.
* Slater’s 12-month Target: $14.
* Snapshot: Danier is a retailer of leather wear and accessories with 70 stores in Canada and Long Island, N.Y. * CEO: Jeff Wortsman.
* Head Office: Toronto.
* Vital Stats: Price/Earnings Ratio, 7.5; Revenue (last 12 months), $164.9 million; Profit (last 12 months), $10.9 million; Market Cap, $65.13 million; Shares Outstanding, 5.61 million.
* Slater’s Comment: “CEO Jeff Wortsman and his team are masterful marketers and sophisticated users of database marketing and closely track their clientele’s shopping patterns. Sales and profitability per square foot are among the highest of all North American retailers. As a microcap with a small float, Danier is under-covered by Bay Street analysts. Buy before Bay Street discovers it and bids the price up as they’ve done with BW Technologies, our favourite stock of 2001.”
* Slater’s Risk Rating: Medium.
* Web watch: www.danier.com

Third Star
* Home Capital Group (HCG.B-TSE)
* Recent Price: $9.65.
* Year Range: $5.85-$10.
* Slater’s 12-month Target: $11.50.
* Snapshot: Home Capital provides conventional first mortgages to self-employed Canadians through its subsidiary, Home Trust Company. It also provides trust services, mortgage-backed securities and unsecured credit cards.
* CEO: Gerald Soloway.
* Head Office: Toronto (80 employees).
* Vital Stats: Price/Earnings Ratio, 10.3; Revenue (last 12 mos), $86.8 million; 5-Yr Revenue Growth, 23%; Profit (last 12 mos), $13.7 million; 5-Yr Profit Growth, 56.4%; Market Cap, $126.20 million; Shares Outstanding, 13.28 million; Dividend Yield, 1.0%.
* Slater’s Comment: “Home Capital has developed particular expertise in evaluating the risk profiles of self-employed Canadians, a segment of the market that is misunderstood and neglected by the large Tier 1 banks. The company is expanding across Canada, especially in Alberta, B.C. and the Maritimes. In the hands of a less experienced and less prudent management team, I would be very wary of this segment of the credit business, but Home Capital has distinguished itself in this niche business.”
* Slater’s Risk Rating: High.
* Web watch: www.homecapital.com

* Disclosure: Slater does not own these stocks personally and states that company policy precludes him from trading in these shares when funds managed by QVGD are actively trading the shares.