Quick Take: Despite the market’s ups and downs, there are always opportunities down the road, says bargain hunter Thyra Zerhusen, who runs ABN AMRO Mid-Cap Fund/N (CHTTX). The manager generally looks ahead to where a stock will be in one year; so, unlike many Wall Street investors, she doesn’t mind if it has a bad quarter.
The mid-cap segment of the market often provides overlooked bargains that “fall through the cracks,” according to Zerhusen, because investors more often focus on large- and small-cap stocks.
Looking ahead, the manager predicts gains for consumer discretionary stocks, including Reader`s Digest Assn (RDA), Scholastic Corp. (SCHL), and Borg Warner (BWA).
Zerhusen’s strategy has met with success. For the five-year period through June, the fund rose an average annualized 9.2%, versus 5.4% for its mid-cap blend peers. This year through the end of July, the fund was up 24.5%, versus 18.2% for its peers.
The Full Interview:
S&P: Have you found fewer attractively-priced stocks because of this year’s market rally?
ZERHUSEN: There is always something to buy. Companies have a bad quarter, so the stock falls. At the end of the first quarter, I found several attractive names, including Andrew Corp. (ANDW), Veritas DGC (VTS), and Reuters Group ADS (RTRSY).
S&P: What’s your approach to valuations?
ZERHUSEN: I look at various criteria: price/earnings multiples, growth rates, and in some industries, market cap to revenue ratios. Right now, Reader`s Digest Assn (RDA) and Scholastic Corp. (SCHL) are selling at fractions of their revenues. Basically, my decisions are bottom up.
S&P: Scholastic has had difficulties over the years with various operations, including its book clubs.
ZERHUSEN: They’ve had the Harry Potter books for the last few years. They were recently weak, and the stock fell, so I added even more.
S&P: Why should investors consider mid-cap stocks?