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Market Savvy | SAVVY CONFIDENTIAL / A briefing for

Decision Time for Value Seekers

Stocks: Frugal fund managers size up the downturn in light of their search for bargains.


There comes a point in every correction or bear market when investors pick themselves off the floor, brush away the dust and declare that enough is enough. Are we near that point yet?

To find out, we asked four respected "value" stock pickers, who tend to wait for prices to drop sharply before buying. Their bargain-hunting at market bottoms frequently provides the kindling that sparks rebounds. A decision by value investors to push back into stocks could signal that the slump has run its course.

So what are they thinking? Here's what some of them said last week. Most had at least 20% of their portfolios in cash, bonds or other defensive investments heading into this summer's downdraft.

* Wallace Weitz, Weitz Value Portfolio, Omaha

Weitz typically holds a fair amount of cash in his portfolio. In recent months, his defensive cushion has hovered around 30%, reflecting steady cash inflows from investors and a lack of bargains.

That cash position hasn't changed materially of late, although Weitz has been buying selectively. He's encouraged by price drops in many of the issues that he likes, including financial companies such as Astoria Financial and Golden State Bancorp., along with Telephone & Data Systems, a telecommunications firm.

* Rich Howard, T. Rowe Price Capital Appreciation fund, Baltimore

Howard had been unenthusiastic about the stock market for quite a while, and this summer's downturn hasn't changed his mind. He believes price-to-book-value ratios remain excessive.

Above all, Howard doesn't think the market's decline has been sufficiently large. "I don't feel we've had a good correction," he said.

This isn't to say that Howard has abandoned stocks--roughly 50% of the fund is in stocks.

Howard even has been adding stocks in certain hard-pressed industries, namely oil, gold and paper and forest products.

* David Dreman, Kemper-Dreman High Return Equity fund, Chicago

Dreman is the exception among these four managers: He stays nearly fully invested in stocks at all times, citing his belief that market timing doesn't work.

Even so, his viewpoint is bearish. Dreman thinks valuations for many companies, including Dell Computer and America Online, remain excessive and have masked underlying weakness in the broad market.

Dreman, who manages the fund from Jersey City, N.J., for Chicago-based Kemper, has been purchasing shares in battered companies such as Humana and has added to positions in other health companies, oil-service firms and financial stocks. But he doesn't think there are enough good deals to dive strongly into stocks.

* Dan Shick, Gradison Established Value fund, Cincinnati

This fund was at its maximum self-imposed cash limit of 30% earlier this summer. But co-managers Shick and William Leugers have been buying of late, shaving the cash position to about 20%. "This correction has encouraged us to put about one-third of our cash back into stocks," Shick said. "If the market drops another 10% or so, we'll go down to about 15% cash."

They're investing in financial stocks and companies such as Tektronix and Johnson Controls, which make industrial equipment.


Are These Buybacks a 'Buy'?

With the stock market sliding, more companies are announcing their intentions to buy back shares on the open market. In the four days following Aug. 31, when the Dow Jones industrial average plunged 512 points, 117 U.S. companies announced buybacks, according to research firm Securities Data. Generally, the companies called their shares undervalued. As the chart shows, all were--and remain--down significantly from their 52-week highs, but all but two have risen in value since the announcement. Sometimes these plans amount to publicity stunts, and some companies may not follow through on their promises. But many investors believe insiders are the shrewdest judges of the value of their shares. Here is a sampling of big companies that announced buybacks last week:


52-week Price 1-day before Wed. Company Ticker high announcement Close UniCapital UCP $19.63 $6.13 $6.44 Titanium Metal TIMT 66.00 21.50 24.81 Camden Property Trust CPT 33.19 25.50 25.88 US Airways Group U 83.25 53.88 50.19 Norrell NRL 36.44 12.50 12.81 ACX Technologies ACX 27.50 15.31 16.31 Raymond James RJF 36.50 17.81 18.50 Financial Avis Rent A Car AVI 38.25 15.69 18.88 Mississippi Chemical GRO 20.50 12.56 13.19 Everest Reinsurance RE 45.25 37.00 38.13 Chateau Communities CPJ 32.00 26.06 26.94 Premisys PRMS 33.25 8.50 10.88 Communications MAF Bancorp MAFB 29.25 20.50 22.00 Zale ZLC 34.13 23.00 26.00 Knoll KNL 42.63 26.81 27.81 CDW Computer Centers CDWC 77.00 38.50 42.00 Provident Bankshares PBKS 36.00 23.00 23.69 Duff & Phelps Credit DCR 59.44 49.25 50.63 First Midwest Bancorp FMBI 52.00 38.50 40.06 Crescent Real Estate CEI 40.88 24.13 23.88 Gannett GCI 75.13 59.00 59.81 Comcast CMCSK 49.25 37.50 41.75 Cypress Semiconductor CY 18.06 6.06 7.75 Knape & Vogt KNAP 24.75 19.13 19.50 Manufacturing

Estimated Company P/E ratio* UniCapital 6.2 Titanium Metal 7.4 Camden Property Trust 8.8** US Airways Group 8.9 Norrell 9.1 ACX Technologies 9.6 Raymond James 9.7 Financial Avis Rent A Car 11.2 Mississippi Chemical 11.7 Everest Reinsurance 11.7 Chateau Communities 11.9** Premisys 12.0 Communications MAF Bancorp 13.3 Zale 13.4 Knoll 13.6 CDW Computer Centers 14.5 Provident Bankshares 15.5 Duff & Phelps Credit 16.3 First Midwest Bancorp 17.1 Crescent Real Estate 17.1** Gannett 20.8 Comcast loss Cypress Semiconductor loss Knape & Vogt N/A Manufacturing


*Estimated price-to-earnings ratio for the next four quarters

**Estimated price-to-funds-from-operations ratio, a common valuation measurement for real estate investment trusts that is used like a P/E ratio.

N/A = Not available

Source: Securities Data

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