"About three years ago Pat Hassey came over [as CEO] and moved this company from a commodity stainless producer to a specialty-metals and titanium producer, and that created a material increase in his returns," Pilara says. Allegheny has reinvestment cash flow of $7.70 per share, and that should climb to $9.90 next year. RS Value Fund bought Allegheny Technologies at 65, and it is now trading in the high 90s."

"Also on his buy list is Key Energy Services (KEGS), a Texas-based servicing contractor for onshore oil rigs. He bought it for an average price of 13, and it was recently trading at 15.20. Pilara calls Key an example of great valuation, great free cash flow and great returns."

"Another pick, Calgary-based Talisman Energy (TLM), is a relatively obscure exploration and production company that's selling at a significant discount to its net asset value, Pilara says. He bought it at 13.87, and it is now selling at about 18. Talisman has a solid mid-teen return on capital, and Pilara thinks production will be 12% to 13% higher next year."

"The fund bought Houston-based Spectra Energy (SE), the dominant natural-gas- pipeline operator to the Northeast, at 28. It has since fallen to 23, but Pilara is hanging tough. "We don't see the current stock price as reflective of the fundamentals of the business. The market is myopic," he says."

"Likewise, the fund bought Alexandria Real Estate (ARE) of Pasadena, Calif., which specializes in properties for the life- sciences industry. The fund bought in at 112 and has seen it drop to the low 90s. But again, Pilara isn't worried."