DJ Pelican Fund's Mayo Focuses On Bottom Fishing For Deals
12 Apr 18:41
By Yuka Hayashi
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Richard Mayo, the portfolio manager of the Pelican
Fund, has been playing the opportunistic investor lately, swooping down on the
market to gobble up stocks others have given up on.
The veteran fund manager takes full advantage of the market's panic-prone
atmosphere. He waits for people to react to gloomy headlines and let go of
stocks that he believes have long-term growth potential.
Mayo said he started buying shares in Corning Inc. (GLW) early last month as
they tumbled amid mounting concerns about fiber optics demand. And as the
market lost hope in the long-distance phone business, Mayo picked up Worldcom
Inc. (WCOM) and Sprint Corp. (FON) for the $120 million mutual fund.
What does he see in these companies?
Fundamentals like cash flow and good balance sheets, and a long-term outlook
for their major business segments.
And as a manager who specializes in value stocks, he looks for cheap stocks,
of course. Corning, for example, is now at $22, down 80% from its 52-week high
of $113.
"At this point, we are much more willing to be opportunistic," he said.
In a sense, Mayo has little choice but to focus his energy on bottom fishing
because he sees very few bright spots in the economy and few companies with
strong growth potential.
"None of us has seen a cycle that slowed down as fast as this one," says
Mayo, who has been in the asset management business since the late 1960s. He
expects the profitability of Standard & Poor's 500 companies to decline 5% to
10% this year, with quickly deteriorating economies in Europe and Asia adding
to their woes.
So far, Mayo has done a good job shielding his portfolio from the gloom of
the economy and the overall stock market. The Pelican Fund is up 1.9% year to
date, beating 97% of its peers in Morningstar Inc.'s large-cap value category.
The fundhas returned an average 14% each year over the past five years, better
than nearly three quarters of its peers. The fund is run by Grantham Mayo Van
Otterloo & Co. of Boston, which caters mostly to large institutional investors
such as college endowments.
Bright Spot In Energy
Right now, Mayo finds more bargains in technology, rather than areas that
have held up better, like consumer durables. That's because of the technology
sector's precipitous decline since last year. He now has roughly 12% of his
portfolio invested in technology stocks, up from 8% during the second quarter
of last year.
Mayo knows a thing or two about making a fortune on beaten-down tech stocks.
In the early part of a technology slump between 1986 and 1988, he bought Intel
Corp. (INTC), paying 73 cents a share after adjusting for stock splits. The
investment "didn't make any sense" for the first three to four quarters. But
then it started on a gradual uptrend that turned into a steep climb in the late
1990s. Mayo started unwinding his Intel position in the second half of 1999 as
the stock no longer fit the fund's value profile and sold off much of it during
the first quarter of last year. After hitting a high of $76 last summer, Intel
has come down to $27.
One industry Mayo is optimistic about is energy. He added aggressively to his
energy position last year, predicting a prolonged supply shortage. As he talked
to oil company executives, he noticed that the output from a lot of oil wells
wasn't meeting forecast, while the reinvestment rate in the industry remained
well below its historical levels.
Even after oil prices started climbing, oil company stocks remained cheap for
five months because most investors thought the oil shortage was just a
temporary phenomenon. Mayo thinks that the power crisis in California finally
made the market realize the graveness of the nation's energy situation.
Mayo's energy picks are concentrated in oil companies with strong presence in
the domestic market, such as Unocal Corp. (UCL), Texaco Inc. (TX) and
USX-Marathon Group (MRO). Over the next two to three years, these companies
should continue to benefit from increased investments in the oil sector and
improvements in corporate efficiency and return on investment, he says.
He avoids top international oil companies like Exxon Mobil Corp. (XOM) and
Royal Dutch/Shell because he thinks they are overpriced at 18 to 20 times
earnings.
Mayo now has 15% of his portfolio invested in energy stocks. He's willing to
add some more.
"I don't think there are many great (investment) ideas out there," he said.
"When you have one, you have to own it."
-By Yuka Hayashi, Dow Jones Newswires; 201-938-2129;
yuka.hayashi@dowjones.com
(John Shipman contributed to this article.)
(END) DOW JONES NEWS 04-12-01
06:41 PM |
