Jun. 20--At the depths of the market last fall when stocks were falling, government bailout programs were being formulated and forecasters were predicting recession and depression in equal measure, the portfolio managers at Tealwood Asset Management in Minneapolis were searching for stocks that would be counter cyclical to the market. They didn't have to look far. Intrigued by the foreclosure business of Dolan Media they headed across town to meet the management and, eventually, Tealwood bought in.

Dolan Media has two principal businesses: the company's professional services business includes Counsel Press, an appellate service provider, and American Processing Co., which provides mortgage default processing services. In 2009, the professional services business provided $99.5 million of the company's total revenue of $189.9 million. Dolan's business information division is the second-largest publisher of business journals and second-largest publisher of court and commercial publications. That division had revenue of $90.5 million.

Mortgage default processing requires multiple steps. Some require a lawyer, but most steps don't. Dolan's proprietary case management software system assists in the efficient and timely processing of large numbers of foreclosure, bankruptcy, eviction and, to a lesser extent, litigation case files.

Portfolio managers at Tealwood were asking: "What's out there that is looking good in a recessionary market?" said David Neal, a portfolio manager at Tealwood. The mortgage default processing business of Dolan and, to a lesser extent, the public notice business in its business journal and legal publications, were the counter cyclical answers they were looking for.

Tealwood follows a value investing model and Neal estimates the average price of Dolan stock it acquired is about $4.40 per share. The stock ran over $14 per share in early May before settling around $11 on Friday.

Bob Evans, managing partner and senior research analyst at Craig-Hallum Capital Group, has been bullish on Dolan Media since it went public in August 2007. He believes Dolan's default processing business will continue to grow. Evans believes foreclosures will rise in 2010 and 2011 and that Dolan can continue to grow its national market share and expand beyond the six states where it provides mortgage default processing now. "There is a misperception that there is going to be a big spike in the foreclosure business," said Evans.

If Dolan Media is such a great counter-cyclical play, why did it get hammered last fall? It dipped below $3 per share in November.