Energy stocks remain at the top of Bay Resource's shopping list. Calgary-based Canadian Natural Resources (CNQ) heads that list. "Canadian Natural has gone from a start-up company to Canada's second-largest producer of oil and gas in just short of two decades," says Claugus. Production per share has grown 10%, while cash flow has grown 25% a year in the past five years. Management owns about 1.6 billion Canadian dollars (US $1.6 billion) of stock, dwarfing the commitments made by other independent producers, he says. At $70, the shares are trading well below the hedge fund's target price of 100, based on a multiple of 16 or more times 2009 earnings of $6 a share.

NII Holdings (NIHD), which plunged from more than 90 in 2007 to a low near 29 recently, provides Nextel wireless services to businesses in Argentina, Brazil, Chile, Mexico and Peru. The shares have been hit by worries about the company's ability to handle 3G, or third-generation, services and the problems that have overwhelmed Sprint Nextel of late. Bay Resource remains a buyer, even though its average cost is 47 a share. "We believe that NII has a great management team that will keep the company growing," says Claugus. He thinks it's a bargain, trading at six times expected 2008 earnings before interest, taxes, depreciation and amortization, or Ebitda, and only 9.5 times projected 2008 earnings of $3.35 a share. NII Holdings "could easily double over the next three years," in his view.

Another pick is credit-card issuer Discover Financial (DFS), which earned a reported 50 cents a share in its most recent quarter. Despite the current credit scare, the Morgan Stanley spin-off has reported improving creditworthiness among its customers. It also benefits from owning its payments-processing network and has the chance to increase market share because its merchant fees are lower than rivals'. Discover has a big share-buyback program under way, as well. The stock, which trades around 16, has the potential to reach 24, or 15 times expected 2009 earnings of $1.60 a share, according to the hedge-fund manager.

Crocs (CROX), a maker of the plastic sandals that became wildly popular over the past few years. Bay Resource initially shorted the stock at $16, only to watch it rocket to 75 before round-tripping back to 18. The shares should go lower because inventories have backed up to 225 days, or 2.5 times the normal 90-day rate, according to Claugus. Here, however, the numbers tell him it's worth taking a chance.