Opportunities Emerging in Value Stock Funds

Value stock mutual funds are showing some opportunities in the market, according to The Wall Street Journal.

“Adversity creates opportunity for value managers, especially long-term value managers,” said Neil Eigen, a managing director at J&W Seligman.

At the beginning of this year value funds struggled during the volatility of the past few months. As the volatility continues, two value managers said they are picking through technology, retail and consumer-staples stocks.

“Whether the market’s up 10% or down 10%, the game is always the same: buying companies that have equal or greater growth rates than the average company” in the Standard & Poor’s 500-stock index “and that are cheaper, said Steven Neimeth, a senior vice president at AIG SunAmerica and manager of SunAmerica Value Fund. And occasionally, you can find those names,” he said. “The volatility, obviously, creates opportunity.”

Technology and consumer staples are two areas that stand out,” Neimeth said. In technology, many of the companies are trading at price-to-earnings reactions that “we have not seen in many years,” he said. For example, Microsoft Corp. is trading at a discount to the market.

Commercial-banking shares have also become cheaper, said Eigen, citing J.P. Morgan Chase & Co. as “a great bank, with great trading activity. It’s very well managed, and it’s depressed because of the mortgage markets,” he said.

It’s too early to look at the housing market, but some of the mortgage brokers, such as lender Countrywide Financial Corp., offer value, Eigen said. Countrywide Financial was making one of six mortgages in the U.S. at their peak, and they will survive.”

He does own certain brokerage stocks with some risk in these areas, but “we avoid pure plays on mortgages and credit. We own Merrill Lynch. It has the least exposure to these issues. We want to buy them, but in the most conservative of ways,” Neimeth said.

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.