Out of the thousands of mutual funds available, how many would you guess made money last year?

A few hundred? Maybe fifty? Twenty?

Nope, only one mutual fund focused on U.S. stocks registered a gain in 2008… just one!

The tiny Forester Value Fund, with only $50 million in assets, recorded a 0.4% gain last year. And while that may not sound terribly impressive, it is when you consider the fact that the Dow and S&P 500 both lost more than 30% during that same period.

Tom Forester, manager of the fund, doesn’t see its small size as a negative. “I’ve been reminded,” Forester said in a recent Wall Street Journal article, “that when your assets aren’t enormous, you can get in and out of stocks in a day — or even an hour — that a larger fund might struggle to do in a month.”

Forester picked up shares of Bank of America (NSYE: BAC) back in July when they were near $18. He then sold those shares when they reached $30 in September. His timing couldn’t have been better.  Had he waited much longer, he would’ve been caught up the October collapse that decimated Bank of America’s shares (B of A stock now sits at $6).

Forester attributes the nimble nature of his fund as a big positive in this case, “If I’d had to pace my sale [of Bank of America shares] over a couple of days, even, I wouldn’t have captured that profit,” he said to the WSJ. Instead, Forester was able to sell his entire B of A position in one day.

After buying up shares of the natural-gas producer EOG Resources Inc. (NYSE: EOG), he did it again. Forester managed to sell most of his shares after the stock doubled, and before EOG started to fall once again.

So, what is Tom Forester buying now?

Well, Forester told CNNMoney that he’s recently been buying shares of Valero Energy (NYSE: VLO) and Andarko Petroleum (NYSE: APC).

“Nobody can really tell what’s going to happen exactly with price of oil,” Forester said. “But as oil got closer to $35, many of the stocks seemed more reasonable than they were when oil was closer to $150. Plus, for the longer term, companies are not finding as much oil as they used to, so prices could go back up. Commodities were oversold.”

Forester obviously feels that now is a great time to get into oil stocks. And since he outperformed the market by over 30% last year, perhaps he’s worth listening to.

Here are five small-cap oil stocks with a share price under $10 and a market cap under $400 million. They’re certainly worth checking out because oil stocks could see a big bounce if Forester’s hunch turns out to be right:

• Berry Petroleum (NYSE: BRY) – Independent oil and natural gas E&P with producing operations in California, Utah and Colorado.
• BMB Munai (AMEX: KAZ) – Independent oil and natural gas E&P with a heavy interest in Kazakhstan.
• Gulfport Energy (NASDAQ: GPOR) – A small E&P specializing in offshore drilling in the Gulf Coast.
• Pyramid Oil (AMEX: PDO) – Domestic E&P with interests in California, New York and Wyoming.
• Vaalco Energy (NYSE: EGY) – International oil E&P based in Houston with interests in the North Sea and across Africa.

Best Regards,
John Schuler

January 22, 2009

John Schuler

After studying history in college, John worked for several years in finance and supply-chain management. He now draws on that experience when scouring the small-cap sector for penny stock plays. John has a particular interest in well-run companies that are both under-valued and poised for significant growth. John also contributed to Penny Stock Fortunes.

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