Greg Elsen of Safeco Small Company Value Fund

When the dust cleared, Elsen concluded that Rent-Way was generating revenue, but had a problem controlling expenses. He felt that, given time, the company could improve its margins, which he reasoned would boost its stock. Today, the company has tightened operations and its bottom line is strengthening, Elsen says.

The company yesterday reported second quarter earnings of $0.06 per share, compared to a loss of $0.16 per share a year earlier. Elsen adds that he sold some shares of the stock this week because it had risen in price.

A recent addition to the portfolio is Shaw Group (SGR), which provides engineering and construction services, primarily to the power generation industry. Investors soured on the stock early last year when building in that sector appeared to have peaked, Elsen says. However, he thought Shaw could weather a downturn because it had a "huge" backlog of orders, he says.

Shaw, which makes prefabricated piping systems, also stands to benefit from its acquisition this month of IT Group Inc., a hazardous waste management company, Elsen says. He maintains the deal will expand Shaw's presence in government and environmental markets and should help drive its earnings higher.

Elsen bought the bulk of his Shaw shares for $20.50 on January 16 and has added to the position since. The stock closed at $35.15 yesterday.

Another company Elsen sees getting a lift from an acquisition is computer reseller Insight Enterprises (NSIT), one of the fund's top holdings. Insight, which also sells software, bought Comark Inc. last month, a privately-owned competitor, to boost its presence in the government market. The deal also gives Insight access to larger companies than it previously served, Elsen says.

Two of the fund's other biggest holdings are Hooper Holmes (HH), which performs health tests for insurers, and Regis Corp (RGIS), the world's largest operator and franchiser of hair salons.

Hooper Holmes produces loads of cash and has little debt, according to Elsen. He expects its revenues to rise "markedly" this year over 2001, and sees earnings growing "a lot faster" than sales because its fixed costs are covered.

Regis, which owns the Regis Salons, MasterCuts and Supercuts chains, agreed last month to acquire the biggest European salon chain, Jean Louis David. In addition to its leading industry position, Elsen says he likes Regis because of its strong cash flow.

The $36-million fund currently has about 13% of its assets in regional banks and thrift institutions, which Elsen says have been able to increase their loan business despite the weak economy.

One of his favorites in the sector is Hanmi Financial (HAFC), a bank holding company whose Hanmi Bank specializes in serving Koreans in Los Angeles and other parts of southern California. Elsen likes the bank because about 30% of its assets bear no interest, lessening its chances of being hurt when interest rates rise.

The fund also has stakes in BankUnited Financial`A` (BKUNA), Macatawa Bank (MCBC) and Camco Financial (CAFI).