Richard Aster has put together the third-best record in the $7.5 trillion U.S. stock mutual fund industry by buying equities that most investors avoid.

His $2.3 billion Meridian Value Fund rose at an annual rate of 19.8 percent in the past 10 years, making it the top-ranked fund in its category, according to data compiled by Bloomberg.

Aster, 64, searches for companies whose profits dropped during the past four quarters. He buys the ones he decides are best positioned for a turnaround. This year's purchases include insurer Conseco Inc., which emerged from bankruptcy in September, and hospital operator HCA Inc., whose earnings were dragged down by loan losses.

"I was always a growth-stock investor," Aster, who started managing mutual funds 20 years ago, said in a telephone interview from his office in Larkspur, Calif. "But I sort of had this intuition that this strategy was pretty good."

Managers of growth funds typically buy shares of companies whose profits are increasing at above-average rates, while value investors look for equities that are cheap relative to earnings, cash flow and other financial yardsticks.

In addition to Conseco and HCA, the Meridian fund's holdings include Time Warner Inc., the world's largest media company, and retailer American Eagle Outfitters Inc.

The fund has outperformed the Standard & Poor's 500-stock index by an annual rate of 8 percentage points during the past decade. The only U.S. stock funds with better records are the Calamos Growth Fund and the Vanguard Health Care Fund, according to Bloomberg data. Aster's fund has gained 3.5 percent this year, exceeding the S&P 500's 0.1 percent advance.

Aster, who has undergraduate and graduate degrees in economics from the University of California at Santa Barbara, was an analyst of growth companies at Newburger, Loeb & Co. in Los Angeles from 1970 to 1972. He then joined Robertson, Colman, Siebel & Weisel in San Francisco, which is now part of Bank of America Corp.'s securities unit.

He left Robertson Colman in 1977 to start his own firm, Aster Investment Management, with less than $1 million. He now has $3.5 billion in assets, including $1.2 billion in the Meridian Growth Fund, founded in 1984.

While managing the growth fund, Aster came across companies with histories of above-average earnings increases that had fallen upon hard times and wondered what would happen if he bought the best of these "broken-down growth companies." That led him to start the Meridian Value Fund in 1994.

Boston Scientific Corp. was one of those companies. The fund bought shares of the largest maker of heart stents in the second quarter of 2002 and the shares almost tripled by the time they were sold during the first three months of this year.

The Boston Scientific purchase led to the promotion of James England, 33, the analyst who recommended buying the stock. England was named manager of Meridian's value fund at the end of 2003, when Kevin O'Boyle left Aster's firm.

Among England's first moves was to add HCA during the first quarter as earnings at the biggest U.S. hospital chain fell more than analysts had forecast. The fund owns 860,000 shares of the company, which have declined 6.6 percent this year and closed Friday at $40.11.

England started buying shares of Conseco during the second quarter and the fund now owns 1.2 million. Improvement in the insurer's balance sheet prompted Standard & Poor's and Moody's Investors Service in May to raise their ratings of the company's financial strength.

Conseco of Carmel, Ind., may earn $2.60 a share in 2006, triple what it earned last year, England said. The company's stock, which closed Friday at $19.09 per share, has fallen 12.4 percent since the end of December.

American Eagle Outfitters has been among the fund's best investments this year, with its stock gaining nearly 83 percent to close Friday at $29.96. The company, whose stores sell jeans and T-shirts for teenagers, had five consecutive quarters of declining earnings when the fund bought the shares in the second quarter of 2003, England said.

The firm owns about 800,000 shares of American Eagle, which remains attractive, trading at 16 times next year's estimated earnings, England said. Shares of the average U.S. retailer have a price-to-earnings ratio of about 20.

As successful as the Meridian Value Fund has been, the Meridian Growth Fund, which Aster manages, has performed better during the past 12 months, rising 24.7 percent. It advanced at an annual rate of 14.3 percent during the past five years, ranking in the top 7 percent of all funds of its type, according to Bloomberg data.

"They run in cycles," Aster said. "Sometimes value investing is in and sometimes growth investing is in. I think it gives the firm a better balance."