Thomas M. Perkins lead manager of the $1.5 billion Janus Mid-Cap Value Fund/Investor (JMCVX), tries to buy shares of companies cheaply, but the strong stock market has made that difficult.

The scarcity of bargains is reflected in the fund’s relatively high cash position, 16% compared with a more typical 10% or less. Perkins is seeking stocks that have performed less ably than their peers. “These are companies whose share prices we expect will pleasantly surprise people over time,” he said from his office in San Francisco.

Perkins, 58, is a partner of Perkins, Wolf, McDonnell & Company, the fund’s adviser. He managed the fund’s predecessor, Berger Janus Mid Cap Value, with his brother, Robert H. Perkins, 63, also a partner of the adviser. Both have run Janus Mid Cap Value since it began in 1998. Jeffrey Kautz, 35, another partner, joined as a manager in February 2002.

Janus’s trading practices are under investigation by Eliot Spitzer, the New York attorney general, who said Janus had allowed at least one hedge fund to engage in frequent trades, known as market timing, and to trade after hours, to the detriment of other shareholders. Janus has said that it is conducting an internal inquiry and will provide restitution to any shareholder who was hurt.

The managers select the fund’s 100 to 120 stocks from companies with market capitalizations of $500 million to $10 billion. Shunning barnburners, they look for companies they expect will have total returns averaging 8% to 10% a year over the next five years. However, “with the market at such elevated levels,” Thomas Perkins said, “returns probably will be at the lower end of the range.”

He also seeks companies selling for below-average valuations compared with their industry and their own history, ideally over 10 years. He measures valuation based on cash flow, book value or normalized earnings, depending on the industry.

He is strongly risk-averse, he said, adding, “I’ve got scars from the 1970′s that keep me perennially cautious.” Perkins said he insists on strong balance sheets to eliminate questions about the company’s survival.

He generally prefers ratios of debt to total capitalization of 35% or less, and strong cash flow. Even if earnings are not growing, he said, “strong cash flows tell us that the company is self-financing and won’t have to dramatically change its business model during difficult times.”

He also reduces risk by diversifying. Financial services companies typically are his biggest stake, currently 19%. Perkins began buying shares of IPC Holdings (IPCR), in Bermuda, in 1998. He paid $23, on average, for the entire position. On Friday, shares closed at $35.90 compared with his $45 12-month target price. IPC is a high-quality company, he said, with a book value of $29 a share and projected earnings of $4.50 a share in 2003, compared with $4.20 in 2002. AIG, the insurer, owns a big stake, and Perkins said he expects the reinsurance business to remain profitable for the long term.