Michael Meyer of C&B Mid Cap Value Portfolio

We purchased the stock late in the summer of 2002, when the price had declined to about $16. The stock was under pressure for a long time because of some negative issues related to the company’s big contract with the American Red Cross. We felt they had worked through these problems, and that they were poised to boost earnings. The stock is currently trading in the low $20s, and we think it has an intrinsic value of about $29.

S&P: Tommy Hilfiger’s stock price has been in a steep decline since last summer. Why do you still have them in the portfolio?

MEYER: Our investment thesis is that Tommy Hilfiger is a strong, well-recognized apparel brand, which we think has staying power. They generate $1.9 billion in annual revenues, but the company’s market value is only $700 million. It’s trading at a P/E of only 6.

However, we are currently re-evaluating our position here since Tommy has rejected some takeover proposals, notably from Jones Apparel of New York. We are concerned by this because, they said they want to expand their brand portfolio on their own through acquisitions. We are closely monitoring them. We have a price target of about $15 for Tommy.

S&P: What are your top sectors?

MEYER: As of March 31: industrials, 27.3%; technology, 15.8%; finance, 14.8%; media & services, 11.8%; retail trade, 10.3%; and consumer non-durables, 9.2%.

S&P: Technology is one of your largest sectors, which could be considered odd for a “value” fund. Can you discuss a couple of your tech holdings?

MEYER: Our exposure to technology is about double the index weighting. We have been moving into tech for the past 12 to 18 months. On a valuation basis, we have found an increasing number of attractive mid-cap tech companies with solid balance sheets and competitive advantages that are trading at depressed prices. Our large-cap portfolio has a much smaller exposure in technology.

Some of our favorite picks are Mykrolis Corp. (MYK), a maker of liquid and gas delivery systems to the semiconductor industry; and AVX Corp. (AVX), which makes passive electronic components like capacitors.

These companies have impeccable balance sheets, low debt and good cash flow. Moreover, they dominate their niche businesses. Mykrolis is depressed because the semiconductor industry as a whole is soft; but when that business rebounds, companies like Mykrolis stand to benefit.

S&P: Relative to your benchmark, in what sectors are you most under-weighted and over-weighted?

MEYER: Finance is a slight underweight, since we’ve trimmed back on Countrywide Financial (CFC). We are severely underweight in energy and utilities. We have fundamental concerns about the utilities industry since they have excess supply, and because companies have made too much investment in power generation.

We are overweight in areas such as economically-sensitive industrials and cyclicals. The stocks we bought here came purely through our bottom-up selection process, but these are industries that we think will benefit greatly when the U.S. economy rebounds.

S&P: What are your sell criteria?

MEYER: We sell a stock outright when it reaches our target price. We start scaling back as it approaches that target. We also sell when the company’s fundamentals have deteriorated, or if we determine our original investment thesis no longer is applicable.

S&P: Can you cite some stocks you recently sold out of, and why?

MEYER: Last year, we eliminated Avnet (AVT), an electronics components distributor, on our concerns over the fundamentals of the electronics distribution business and Avnet’s increasingly leveraged balance sheet. Recently, we sold off Perrigo (PRGO), a private label manufacturer of OTC medicines, because it reached our price target.