A Top Fund Manager's Favorite Three Stock Picks

Tuesday, 1 May 2007 | 10:55 AM ET

The Wasatch Micro Cap Fund is Morningstar's top-performing five-star-rated fund, with 25% annualized return. The fund's portfolio manager, Daniel Chace, shared his investment philosophy -- and his favorite stock picks -- with "Squawk on the Street" viewers.

Chace told CNBC's Mark Haines that his fund seeks "high-quality companies with great managements" and "low turnover." He said the last three years have been "strong" for micro-caps and small caps, but Wasatch has begun to "look more internationally" of late -- particularly in Singapore, where the fund has been "very successful" in finding well-managed small caps.

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Chace named his top three stocks:

- SM&A, a consultancy that helps companies bid for and win major procurement deals, particularly in aerospace and defense. Chace notes the firm recently hired a CEO drawn from Lockheed Martin.

- Big 5 Sporting Goods, a "very high quality" retailer of athletic apparel and basic equipment. He lauds its "fantastic" same-store sales growth and store opening schedule.

- VNUS Medical Technologies, which creates devices for "inexpensive" and gentler varicose-vein treatments.

Five-Star Money Manager
Of all the funds tracked by Morning Star, the Wasatch Micro Cap Fund is the top performer over the last ten years - sporting a 25% annualized return. Daniel Chace, portfolio manager for the Wasatch Micro Cap Fund, discusses his success with CNBC's Mark Haines.

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