Mutual Funds Snap Up Oversold Credit and Retailing Stocks

Mutual fund managers have been taking advantage of recent market volatility to snap up attractive opportunities, and are doing so by digging into their hoards of cash, writes Shefali Anand in the Wall Street Journal.

"It's the gigantic after-Christmas sale," says David Winters, manager of Wintergreen Fund. His cash pile is down to 11%, according to the fund's most recent end-of-year filings, from 25% a year earlier.

And the targets of the mutual funds' shopping sprees range from carpet makers to retail stocks and even companies which may find themselves embroiled in the credit turmoil. And yet the fund managers clearly see an opportunity. American Express (AXP) is one such stock that attracted Jean-Marie Eveillard, portfolio manager of First Eagle U.S. Value Fund. The credit card company has seen its price drop 15% over the past year. As Anand reports:

While Mr. Eveillard is still assessing what kind of damage the company might end up with, he says the stock had become too cheap to ignore. Eveillard also likes asset-management and mutual-fund companies, which have high margins and cash flows... He says the retailing stocks are oversold, given that there hasn't been a consumer-led recession in more than 15 years.

Don Yacktman, manager of two Yacktman funds, has chosen to spend some of his funds' cash on Wal-Mart (WMT), Home Depot (HD) and Pulte Homes (PHM).

"Now's the time to look at names with economic sensitivity," [Yacktman] says. He also has picked up AmeriCredit (ACF), a company that provides auto financing, mainly to used-car buyers.

Winters, of Wintergreen Fund, prefers the likes of tobacco companies, foreign stocks and bonds. Among his recent purchases and additions are Japan Tobacco, Imperial Tobacco Group (ITY) and Anglo American (AAUK).

Bruce Berkowitz, manager of the $6.7 billion Fairholme Fund, has used some of his fund's cash position to increase or buy holdings in carpet maker Mohawk Industries (MHK) and building-materials manufacturer USG (USG).

Comments

[Kunst]

How much for that deck chair on the Titanic?