Oritani Financial Corp.(ORIT), Symantec Corporation (SYMC): Prospecting for Safe Stock Gains Part 2

Prospector Opportunity Fund (POPFX) earns Morningstar’s top 5-Star rating. While the fund has done OK in good markets, it is the down markets in which the company shines relative to its peers. Manager Kevin O’Brien recently highlighted two regional banks and a turnaround in the tech space as companies with upside potential and limited downside risks.

OK Upside, Great Downside

Co-managers Kevin O’Brien, Richard Howard, and John Gillespie have a value bent, with a bottom up approach, but one question that they ask about every stock stands out. While many investors ask themselves how much money they will make if a stock investment works out, O’Brien explained to me in a recent interview that he and his partners ask “If this doesn’t work, how much will we lose.”

That type of thinking has helped the fund earn a nearly 8% annualized return since its September 2007 launch, outpacing its Russell 2000 Total Return Index benchmark by over three percentage points through March of this year. A key aspect of that impressive performance was losing “only” 19% in 2008, a year in which the broader market was off by nearly 40%.

Looking for Value

Safety isn’t the only thing the managers consider, of course. Other key factors in the purchase process include a review of a company’s balance sheet strength, management quality, products and/or services, overall franchise or brand value, and an assessment of the company’s business model. The co-managers also look specifically for a catalyst that will lead to improved performance, such as a change in management, corporate actions (a unit sale), or changing industry fundamentals.

Here are three stocks that O’Brien recently highlighted based on their upside potential and their downside protection:

Two Small Banks

While the big banks have been making the news ever since they crumbled during the 2007 to 2009 recession, O’Brien and his co-managers have never been too excited by such companies. The leverage such giant institutions use is just too high. The trio prefers to find smaller banks that use less leverage and simply focus on serving their customers well.

Ocean First Financial, for example, operates in Ocean, Monmouth, and Middlesex counties in New Jersey. It is a basic, small-town bank. It started 2013 with 24 bank locations. Oritani Financial (NASDAQ:ORIT) is another small bank. It has 25 branches in New Jersey’s Bergen, Hudson, and Passaic counties.

Neither of these banks is a particular standout in the market, as both are just small, regional players. However, both are well capitalized and financially strong. Ocean First yields around 3.4% while Oritani Financial (NASDAQ:ORIT) yields a little over 4.5%.

O’Brien notes that both companies have large insider ownership and have been buying back stock. With improving returns on equity, both regional banks look like solid long-term holdings. A teaser, however, is the potential for an acquisition by a company looking to gain scale in the New Jersey market.

Although neither bank is likely to provide shocking upside, you get paid to own them and downside risks are limited.

A Tech Turnaround

Symantec Corporation (NASDAQ:SYMC) is a story of a tech company that went on a growth bender and wound up losing its way. Simply put, too many acquisitions strained the company and dragged down performance.

This has left the shares trading at a discount to its historic P/E multiples. However, based on a recently initiated plan to return value to shareholders via dividend payments and stock buybacks, it looks like the company is making important changes that could close that discount.

The most important change O’Brien sites, however, is a new leader. The company’s new CEO has an impressive pedigree, including stints at GE and Intuit. He has proven track record of reducing costs and increasing efficiencies. He’s already starting to work that magic at Symantec Corporation (NASDAQ:SYMC), including “lighting a fire” under the company’s sales force and a thorough review of its business offerings.

O’Brien expects to see unit sales and operational changes lead to increased margins and a nice bounce in earnings. With low market expectations and a renewed focus on shareholders, Symantec looks like a solid turnaround play.

Opportunity

Although O’Brien and his co-managers keep the downside in mind when they invest, finding that special catalyst that could lead to long-term gains is an important investment goal, too. The two regional banks and tech company above are a good combination of safety and potential.

The article Prospecting for Safe Stock Gains Part 2 originally appeared on Fool.com and is written by Reuben Brewer.

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