'Contrarian' approach points to profit
cbs.marketwatch.com
By Myra P. Saefong, CBS.MarketWatch.com
Last Update: 4:32 PM ET Feb 20, 2001 NewsWatch
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NEW YORK (CBS.MW) - Just over two months old, the Federated Market Opportunity Fund is delivering shareholders eye-popping returns of $100,000 a day.
The fund's (FMAAX: news, msgs) manager Steve Lehman uses a list of "contrarian ideals" when choosing stocks that yield the greatest returns.
Lehman looks for companies that meet the following requirements: They must be undervalued and out of favor, have low risk for relative price decline when the market is weak, improving free cash flow and shareholder-oriented management.
The $6.5 million fund is based on a variable annuity fund Lehman manages for an insurance company client, and has risen 6.8 percent since its inception Dec. 4, compared to a 0.4 percent decline in the S&P 500 for the same time period. It returned 3.1 percent in December and 1.9 percent in January, Lehman said.
The return on the $133 million variable annuity fund since its April 30, 1999 inception is 25.4 percent vs. 15 percent for the Russell madcap value index.
Lehman's top pick is Archstone Communities (ASN: news, msgs), a national apartment company that's selling at a discount to its real estate value and management. Archstone benefits from strength in the California market, but it's also more diversified than some of the other leading apartment companies, Lehman said. "Management is also repurchasing stock and recycling assets by divesting less attractive properties and deploying the proceeds into more attractive new developments or share repurchases." Shares fell 22 cents to $23.51 Tuesday.
Lehman also likes Anglogold (AU: news, msgs). The world's largest producer of gold is in a "completely out-of-favor asset class," he said. The company is financially strong and a good defensive stock. Anglogold "may take some patience, but the risk return of this stock in this sector is far more attractive than that of many of the widely known and popular largest growth companies that I maintain are still substantially over priced and very risky," he said. Shares lost 24 cents to $13.81.
Lastly, Lehman recommended Devon Energy (DVN: news, msgs), a leading producer of natural gas. The company is well managed and selling at a historic discount to its normal valuation, Lehman said. Even though the company has grown primarily through acquisitions, it has done so while improving values to existing shareholders, he said. Shares rose $1 to close at $58.59 Tuesday. |
