What's an investment manager to do--once he has snapped up the large-cap stocks that have skyrocketed along with the Dow? Robert Lyon, who heads Institutional Capital in Chicago, pursues big-cap stocks that are still undervalued, some of them overseas.

One that recently caught his eye: London's Peninsular & Oriental Steam Navigation--P&O for short. The stock is little known on Wall Street, even though its American depositary receipts (POSNY) trade on the NASDAQ. P&O, which provided many Britons their passage to India in the heyday of the Raj, embarked last year on a huge restructuring plan. Lyon reckons management is moving in the right direction to boost P&O's lackluster stock.

For a decade ending in 1995, it ''was among the worst performers in both Britain and the U.S.,'' notes Lyon. The stock started moving up in mid-1996-- from 15 to 19--when restructuring started. But since then, P&O has been locked in a tight range, around 20.

The company's assets are worth a lot more than the price, says Lyon. ''P&O is really an undiscovered value play, at just 10 times estimated 1998 earnings of $1.90 a share,'' says Lyon. He figures the stock is worth 30.

P&O's cruise business alone, which includes Princess Cruise Lines, is worth half P&O's market cap of $6 billion, says Lyon. This unit had operating profits of $250 million last year, up from the previous year's $175 million. This year, it should earn $300 million.

Lyon and other investors, including Merrill Lynch, are pressing P&O to take its cruise unit public by spinning off part of it. As a stand-alone company with assets worth $3 billion, or 10 a share, P&O's cruises could command a much higher price, argues Lyon. P&O's cruise fleet is one of the three largest in the world. Princess Cruise Lines runs nine ships, mainly in North America, while P&O Cruises (U.K.) has three.