Where Money Managers Are Placing Their Bets

by Alan Lavine and Gail Liberman

The economy is coming out of a recession. Eventually corporate earnings and stock prices should rise. When we see two consecutive quarters of solid earnings growth, analysts will be touting stocks that are undervalued today.

Here are the favorites of several money managers who have outperformed the S&P 500 over the past five years. 

David Winters, manager of Mutual Discovery Fund, which buys beaten-down small company stocks in the United States and abroad, likes the health care, financial and leisure industries. He sees a great deal of consolidation in these industries. The fund has grown at a 10.4 percent annual rate over the past five years. Largest holdings include Berkshire Hathaway, Lagardere, Pacific Gas & Electric, and Suez SA.

James Stratton, manager of the Stratton Monthly Dividend Fund, says that income producing real estate investment trusts in the travel and lodging industry got hit hard after last Sept. 11. But he is sticking with those stocks. As the economy improves, Stratton believes, so will the travel and lodging businesses. Stratton's fund is designed to provide investors with income from real estate stocks. The fund yields 7 percent. Over the past five years, the fund has grown at a 7.6 percent annual rate. Largest holdings include Mid-Atlantic Realty Trust, Innkeepers USA, Pennsylvania Real Estate Investment Trust and First Industrial Realty Corp.

Overseas, David Herro, manager of the Oakmark International Fund, looks for European stocks to do well as the world's economies improve. Many of the stocks are undervalued compared with similar United States stocks. So they have strong upside potential. In Latin America, he says, Brazil, Mexico, Chile and the Pacific Rim are expected to perform well. The fund has 62 percent invested in Europe, 2 percent in the Pacific Rim and 9 percent in Latin America. The fund has grown at a 7.5 percent annual rate over the past five years.

Meanwhile Ralph Wagner, manager of the Liberty Acorn fund, up more than 15 percent annually over the past five years, invested more in software stocks at the end of 2001. The stocks appeared to be cheap and long-term growth in software spending seems likely, he says. Stocks he favors include JD Edwards, Kronons and JDA Software. These stocks all register big returns in the fourth quarter of 2001.

Alan Lavine and Gail Liberman are husband-wife personal finance columnists, journalists and authors. They are the authors of "The Complete Idiot's Guide to Making Money with Mutual Funds," published by Alpha Books. Their columns appear in newspapers throughout New England and the Southeast, as well as online. Their commentary on mutual funds and personal finance is carried by 200 radio stations nationwide every Sunday over Business News Network's Charles DeRose Financial Advisor Show.

More articles by Al and Gail can be found here.