July 26, 2002 -- Sensing a market bottom, many value managers have zeroed in on companies they've liked for a long time, believing they've been unfairly beaten down.
"You have to stick with the companies you know and trust," said Thyra Zerhusen, manager of ABN AMRO Talon Mid Cap Fund (CHTTX), who also feels, "valuations are finally really attractive." Lately, Zerhusen has mostly been adding to existing positions because she feels there is great confusion in the market. Concerned about high volatility, Zerhusen has stuck with long-term holdings, saying "you know them -- they've told you their problems in the past."
Focusing on strong balance sheets, Zerhusen has recently added to Diebold, Inc. (DBD), which has an "ethical" management and Boston Scientific (BSX), whose earnings recently beat estimates. Zerhusen also favors technology companies, particularly business processing and storage software. Her picks include Unisys Corp. (UIS) and EMC Corp. (EMC).
Believing that the stocks he owns "are getting cheaper by the day," Peter Morris, manager of Homestead Small Company Stock Fund (HSCSX), has recently added to such holdings as Southwest Airlines (LUV) and Hewlett-Packard (HPQ). A bottom-up investor, Morris feels "now is a good opportunity to buy" because investors are overreacting to corporate governance scandals. Financial misdeeds aren't new, said Morris, who points to ten years ago when Rudolph Giuliani, then U.S. District Attorney, had several employees at Goldman Sachs (GS) handcuffed.
"On a valuation basis, we are near a bottom," said William Fries, manager of Thornburg Value Fund (TVAFX), who feels "the excess valuations have largely been taken away from stocks." Fries thinks the market had a "classic V-shaped bottom" this week, which has led him to increase his stakes in companies that will do well regardless of the economy and are "very dominant in their niches." As examples, he points to Wilmington Trust Corp. (WL) and ConAgra Foods (CAG)."
The bear market has let David Katz, manager of Matrix Advisors Value Fund (MAVFX), "buy the best businesses at poor business prices." Feeling that "you rarely get these opportunities," Katz has picked up "quality businesses with good balance sheets at very depressed valuations." Examples include General Electric (GE) and Wyeth (WYE).
Bob Torray, manager of Torray Fund (TORYX), currently feels that "stocks of major companies are too low and shouldn't fall further." Torray is seeing opportunities in "well financed companies with strong competitive positions -- There is nothing not to like." In particular, Torray feels that financial service stocks such as Citigroup Inc. (C) and J.P. Morgan Chase & Co. (JPM) have been oversold, which he attributes to the "hysteria of Enron." Torray also likes financial services because of its profit margins and the growing demand for its services.
"The lower the market gets, the less risky it gets," said Douglas Davenport, manager of Wisdom Fund (WSDVX). Davenport thinks the market is poised for gains because "the scandals are yesterday's news -- they are over." Despite his confidence, Davenport is holding off on new purchases until mid August, when corporate managements will have to certify their accounting statements subject to criminal penalties. Davenport feels that "CFOs will have a tough time signing" their accounting statements, but after August, he'll consider financial stocks that have been "knocked down to appropriate levels." These include American Express (AXP), Wells Fargo (WFC), and American Intl Group (AIG) .