SAN FRANCISCO (MarketWatch) -- If you pick stocks for a living, a company's price-to-earnings ratio usually plays a part in your decision to buy or not to buy.
But that metric is not always top of mind for Marshall Berol, co-manager with Malcolm Gissen of the Encompass Fund, comprised of 30 to 40 stocks from a wide variety of industries and countries. While Berol and Gissen invest in companies large and small, some of their holdings are small- and micro-cap firms in product-development mode. That means no revenues yet.
"These companies that are developing products or assets in the ground may not have any revenues, but if they have a clear path to developing revenues we find that an attractive way to invest," Berol said.
"A lot of people say, 'If you're investing in a company with no revenues, that's very risky,'" he added. "On the one hand, yes it is. On the other hand, they can have a lot of revenues and be a disaster as an investment, i.e. General Motors for one."
Of course, these emerging companies can give investors a volatile ride. The fund (ENCPX 8.74, -0.10, -1.13%) took a 62% hit in 2008. This year has been a lot prettier: The fund is up 121% this year through Dec. 3. On a three-year annualized basis, the fund is down about 2.5% (the fund turned three years old in June).
"What we're looking for are undiscovered, under-followed -- or maybe not followed at all in many cases -- value-type investments that will be investments -- we're not traders -- and will work out over six, 12, 18 or 24 months, maybe longer," Berol said.
Uranium Energy
UEC 3.68, +0.11, +3.08%
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One of the fund's biggest holdings, Uranium Energy Corp. (UEC 3.68, +0.11, +3.08%) , a U.S.-based exploration and development company, is positioned to capitalize on the global demand for the uranium used by nuclear power plants, Berol said.
"There's approximately 180 million pounds of uranium used worldwide and approximately 100 to 110 million pounds produced annually. That's been the case for the past number of years," he said. The shortfall currently is being covered by a couple of sources, but their supply is finite, he noted.
"The shortfall has come from above-ground supplies of inventories that had been mined 20 or 30 years ago [but] most particularly from the decommissioning of the Soviet Union's nuclear weapons," Berol said. "The above-ground inventories are depleting and the U.S.-Russia agreement ends in 2013."
That means demand will outstrip supply -- that could be good news for Uranium Energy. "When uranium was selling for far less money than it is today, they went out and bought a number of projects," Berol said. Also, the company buys information databases that detail historical exploration -- information the company then uses to figure out where to buy next.
Plus, the company hired an "experienced, knowledgeable team to discover and develop mining projects," he said. The firm's current major project -- the Goliad ISR Uranium Project in South Texas -- is in the final stages of securing permits.
Uranium Energy shares lost 3.8% to close at $3.57 on Thursday.
Delcath Systems
DCTH 5.28, +0.18, +3.53%
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