July 11, 2003

Auxier Focuses On Its Fallen Favorites

An edited excerpt from the July 10, 2003, edition

Nothing gets Jeff Auxier more excited than to see a great company with bad headlines.

That's when he pounces. He might watch a favorite company for months, or even years, waiting for a chance to buy it on the cheap.

When it's hammered by bad news -- news that he's convinced is only a temporary setback -- he runs in and buys shares from panicking bulls.

Take HCA Inc (HCA), the nation's largest for-profit hospital group. Citing a slowdown in flu cases, in April it said it would miss analysts' earnings forecasts. The stock had been as high as 52 the previous June, but tumbled on the news to 27.

Auxier, 44, who runs Auxier Focus Fund (AUXFX), thought it was a great buy at 31 and jumped on it. So far, it's bounced back to 32.

"Trends have been weak," said Auxier, referring to weakness among hospital stocks. "But the economy is also weak. When the economy improves, these stocks should do well."

Auxier isn't wedded to the stock market. He'll buy any asset class he thinks offers opportunity.

"We buy whatever offers the highest return with the least risk," he said.

Last October, as stocks hit a bear-market low, he put 30% of the fund into corporate debt.

"We found real good equity-type returns in the corporate market," Auxier said.

Among companies whose debt he bought were Waste Management (WMI), Tyco Intl (TYC), AOL Time Warner (AOL) and PG&E Corp (PCG), whose bonds he bought the day the firm went into bankruptcy.

These companies, he says, were struggling to clean up their balance sheets in the face of imminent downgrading by rating agencies.

He buys senior debt above junk status. PG&E, he says, kept paying interest on bonds he bought right through bankruptcy. Now he's starting to wind down all of his bond positions.

"We think the value is about gone there," he said.

Another opportunistic stock buy was Federal Natl Mtge (FNM).

Auxier bought the mortgage packer in June when it dropped in sympathy with its cousin Federal Home Loan (FRE).

Congressional critics of both companies have pressed for more regulatory oversight of the firms. Freddie Mac has attracted more heat, due to its need to restate earnings.

Auxier thinks Fannie is more likely to skirt new regulatory burdens.

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