By Ryan Derousseau, contributor
FORTUNE -- Andrew Baumbusch looks for companies with hiccups. The lead manager of the Denver-based Cambiar Small Cap Fund (CAMSX) likes to invest in great businesses that have suffered short-term setbacks. The approach has proved profitable. Over the past five years, his fund has averaged a 6.3% return, vs. 2.4% for the Russell 2000 small-cap index. Recently Baumbusch spotted an opportunity in building-maintenance specialist ABM Industries (ABM).
1. ABM isn't big, but it has a long track record
Investors who specialize in small-caps must have a higher tolerance for volatility than those who buy larger, more stable companies. Baumbusch likes to mitigate that volatility by owning some mature businesses. The 103-year-old ABM handles security, parking, janitorial, and other services for offices and hotels -- consistent businesses that aren't roiled by innovation. And, says Baumbusch, investors have seen how the company, with $1 billion in market cap, "will perform in good environments and bad."
2. It's recovering from a poor acquisition
ABM has missed sales and profit estimates several times in recent years, in part because of its ill-timed $300 million purchase in 2010 of the Linc Group, a contractor that ran barracks in Iraq. When troops began coming home in 2011, Linc faltered. From 2009 to 2011, Linc's revenue dropped 11%, from $579 million to $513 million. Baumbusch notes that the Linc Group accounts for only 12% of ABM's sales. He bought 820,000 shares of ABM in late October, when the stock was some 30% off its 2011 high.
3. ABM is leveraged to an economic rebound
As the U.S. economy continues to recover -- and offices and hotels become more crowded again -- ABM benefits. In its most recent quarter, the company met Wall Street's sales expectations and easily beat analysts' earnings estimates. And despite the setback with the Linc Group purchase, points out Baumbusch, ABM continues to make strategic acquisitions. Since October it has made three deals, including an all-cash, $158 million purchase of Air Serv, an airport-maintenance service.
4. The company has loads of cash, and flexibility
In 2012, ABM's revenue crept past $4.3 billion. But Baumbusch is more impressed with its cash flow. Even after its recent acquisitions, ABM's ratio of free cash flow to net income sits at a robust 154%. That gives management the flexibility to make more acquisitions as well as to reward shareholders. The stock offers a healthy 3% yield, and ABM has consistently raised its dividend over the years. "Those are the kinds of things that speak to the staying power of the business," says Baumbusch.
This story is from the January 14, 2013 issue of Fortune.
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