Appleseed Fund goes almost anywhere to find cheap, high-quality stocks. By Elizabeth Leary, Contributing Editor August 26, 2009 When market indexes flounder and flop, it pays to look nothing like an index. That strategy has certainly worked for the Appleseed Fund (symbol APPLX). Its concentrated, 20-stock portfolio runs the gamut from the bluest of blue chips to the most minuscule of micro-cap stocks. Even more impressive than Appleseed's stellar one-year return is its performance from the start of the 2007Ð09 bear market: The fund gained 1.4% from October 2007 through August 7, while Standard & Poor's 500-stock index, even after its recent surge, tumbled 32.5%.Appleseed's investment process combines a search for deeply undervalued stocks with a social-responsibility theme. The five managers cast a wide net for ideas, but to make it into the portfolio a stock must look cheap relative to the free cash flow the company generates and trade for at least one-third less than their estimate of a company's value. Moreover, Appleseed's managers won't consider any company that deals in tobacco, alcohol, gambling, weapons or pornography. John B. Sanfilippo & Son (JBSS), Appleseed's third-biggest holding, exemplifies the team's approach. With a market value of just $90 million, Sanfilippo is the second-largest U.S. nut producer, behind Planters. But a series of short-term issues, such as high nut prices and a move to consolidate manufacturing centers (not to mention the bear market), caused the stock to plunge from $52 in 2004 to $4 in late 2008. At that point, "we backed up the truck," says Josh Strauss, one of Appleseed's managers.