Like all portfolio managers, Dawn Alston Paige uses complex formulas and algorithms to identify stellar stocks. Even though her stock-picking approach may be sophisticated, her criteria for what makes a good investment are easy to understand. "We're looking for stocks at reasonable valuations that have improving fundamentals,†says Alston Paige, executive vice president of Piedmont Investment Advisors in Durham, North Carolina. "We seek companies that are expanding margins, reporting upside earnings surprises, and beating consensus expectations.†Alston Paige manages Piedmont's Small Cap Value Opportunity portfolio, a collection of investments made up largely of companies whose market capitalizations are between $100 million and $2.5 billion. It's a category she knows well. She's spent the better part of her 18 years in the financial industry researching and investigating the prospects of small-cap companies. Before joining Piedmont, she co-managed the Small Cap Value fund at the Bloomfield Hills, Michigan, location of Loomis, Sayles & Co. black enterprise spoke to Alston Paige about a handful of small-cap companies whose stocks are poised to benefit from economic recovery. What is Piedmont's outlook on the economy for the second half of this year? We're cautiously optimistic. I know those are everyone's favorite words right now. The leading economic indicators are showing strong gains, and that typically bodes well for the economy. While we have some major concerns such as high unemployment and a weak housing market, in general, the majority of the recent economic data continues to support the thesis of a broad economic recovery. What about the financial markets? Do you expect to see a continuation of the 2009 rebound throughout 2010? We think there could be a typical midyear reassessment this summer, a healthy correction where investors will begin to ask if stock valuations have gotten a little ahead of themselves. First and second quarter earnings results will influence the severity of any correction. Meanwhile, positive economic data have continued to support the market's upward bias. What are some of the more solid companies you're excited about these days? One of them is EnerSys (ENS). In terms of market capitalization, they are a $1.2 billion company. They manufacture industrial batteries. About 51% of their business is in motive power batteries [which power railway, mining, and factory equipment such as forklifts], and 49% of sales are in reserve power batteries, used in utilities and telecom industries, providing backup power for cellular telephone towers and wireless networks. This business has really benefited from the continued build out of the wireless network. That's one of the drivers of growth. The business that hasn't been doing well is the motive power battery business, batteries for vehicles that you'd typically find hauling and moving things inside factories and distribution centers. We're expecting to see a turn in that business. They have 40% global market share in that space. And as general economic activity picks up, companies will order more of these forklifts and commercial vehicles, buy more new batteries, and replace old ones. EnerSys has a strong balance sheet, and they're a well-managed company. They've done some acquisitions that we believe will help them grow beyond some of the current market estimates. Going forward, we think the company will be able to push through some price increases, helping to expand margins. Our year-end price target for the stock is $34. So, this would be an investment in the idea that global industrial activity is powering up again. Are other companies taking advantage of this trend? Buckeye Technologies (BKI), a producer of specialty products based on cellulose, a basic industrial material used to make everything from TV and computer screens to toothpastes, shampoos, and paints. The company has a market capitalization of $552 million. There's been a tight global inventory situation as a result of capacity to produce being shuttered in the midst of a global recession. Now that industrial activity has begun to improve, inventory in the market is still tight and prices are going up for the materials Buckeye produces. Also, the Chilean earthquake [in late February] shut down 8% of global production. So, right now, there's an imbalance between the available supply and the demand for cellulose-based products. We think Buckeye can take advantage of this. There are strong fundamentals working in the company's favor. Global recovery supports the thesis that there will be gains in demand. I think it's a great opportunity to participate in global industrial growth driven by developing countries that need raw materials for very basic end products. This is a company with solid underpinnings. Our year-end price target is $19. So far, you've chosen two producers of industrial goods. Are you sticking with that theme for your final pick? No, actually the final pick is an apparel manufacturer with licensed brands and very favorable dynamics: G-III Apparel Group Ltd. (GIII). This is a company with a $500 million market capitalization. Their business is 89% wholesale, selling outerwear and other clothing to stores such as Bloomingdale's, JC Penney, Kohl's, and Nordstrom. Macy's is one of their larger customers. They've historically been an outerwear company, which meant that all their profitability used to come in the third quarter. They've expanded to other types of clothing and accessories. For instance, they own a license to make dresses for the Calvin Klein label. The other positive driver for them is that the entire retail sector is restocking its inventory on the heels of stabilizing consumer demand. I think the American consumer has continued to surprise everyone; same-store sales are pretty strong. Any increase in demand at the retail level should benefit the suppliers who sell to retailers. G-III's management has been increasing margins. We expect this trend to continue through 2010. We think there's significant opportunity for this company to outperform market expectations. G-III bought Wilson's Leather retail outlets in 2008. They're improving margins in the Wilson's business by reducing the cost of materials. That business has yet to contribute to results. We're starting to see positive signs, and there's a possibility that by the end of the year that portion of the business could swing positive. G-III's overall strategy is to increase the number of stores that sell their apparel. We see all of this leading to upside earnings surprises. Our year-end price target for G-III is $34.50. This article originally appeared in the June 2010 issue of Black Enterprise magazine.