Quick Take: Edward von der Linde believes the best way to minimize risks and maximize returns in investing is to marry quantitative and fundamental analysis.
That's what von der Linde does as lead portfolio manager of the Lord Abbett Mid-Cap Value Fund/A (LAVLX). First, he relies on a computer model to screen for companies with histories of profit and sales growth. Then he looks for catalysts in either a company or an industry that can push a stock higher.
Although his fund lost 9.8% last year, it topped its mid-cap value fund peers, which dropped 13.6%, and the Standard & Poor's 500-stock index, which was off 22.1%. For the five years ended in December, Lord Abbett Mid-Cap Value returned 9.2% on average, compared to gains of 3.4% by similar funds, and a loss of 0.6% by the index. The portfolio, which von der Linde has helped run since late 1995, is a Standard & Poor's Select Fund.
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Not much changes in the Lord Abbett Mid-Cap Value Fund. In running the portfolio, Edward von der Linde says he doesn't buy and sell stocks very often.
"We're boring and dull," he quips. "We sort of plod along."
One company that made its way into the $2.2-billion fund is MeadWestvaco Corp (MWV), which grows trees that it uses to produce paper products. The fund manager bought the company about a year ago, when it was formed through the merger of Mead Corp. and Westvaco Corp.
At the time, von der Linde says, Wall Street analysts wanted no part of the new entity because they feared its financial results would be disappointing. However, von der Linde, who looks for catalysts that can boost a stock, saw one in MeadWestvaco's combined management. The business also stood out because it was generating a lot of cash while paying down debt and offering a good dividend yield, von der Linde says.
"You're looking at a company that could probably do somewhere north of $1.50 per share in earnings," he says.
The catalysts he seeks can be company or industry-specific, like a new product introduction, or consolidation. But before scanning for potential sparks that can ignite a stock, von der Linde relies on a computer model to identify companies with market caps of $500 million to $10 billion that consistently increase earnings and revenues, among other things. He also wants reasonably priced shares.
For example, the fund's No. 1 stock, Halliburton Co (HAL), is "incredibly cheap," according to von der Linde. Despite a recent deal to settle asbestos-related lawsuits, he thinks shares of the oil field services company are worth more than they're trading for.
Similarly, the fund manager describes the stock of paper manufacturer Georgia-Pacific Corp (GP), another major holding, as attractively priced. In addition, he likes the company because its acquisition of Fort James in late 2000 has helped reduce competition from smaller rivals that had hurt Georgia-Pacific's margins.
The fund's top stocks also include Hubbell Inc`B` (HUB.B), an electrical products maker the fund manager was drawn to when Timothy Powers was named chief executive about 18 months ago. Powers is a "very disciplined leader who is focusing the company on, first and foremost, improving their internal operations," says von der Linde.
Powers, he adds, has used the cash the company generates to "make some pretty good acquisitions," such as lighting products maker LCA Group, which Hubbell bought in April. Hubbell's stock price so far has not reflected the "potential synergies" of the deals, von der Linde says, because analysts are uncertain whether Hubbell can successfully integrate its newly acquired units.
Looking at the market's performance over the rest of this year, von der Linde thinks small and mid-cap stocks will perform better than large companies. Valuations among small and mid-sized stocks are better than those of companies in the Standard & Poor's 500-stock index, he argues.
"If you really want to build wealth," von der Linde says, " you're going to have to do it away from the headlines and away from (big-cap stocks) where people" had their money invested over "the last three years of the 1990s."