Where Three Mutual Funds Are Finding Bargains

(page 2 of 2)

Eye on Market Share

Oakmark International's Herro, 48, has had a rough ride in the past few years. From 2003 through 2006, Oakmark International's average gains exceeded 25% a year. But the $2.8 billion fund's recent performance has been "lousy," Herro says. One reason he cites: adding financial-service stocks in late 2007.

Herro also has been doing some clearing out lately. One company that got the boot was Barclays (BCS), which he had bought within the past year. Herro concluded Barclays would be no better off coming out of the crisis than it was going in. "You not only have to make sure the companies you're invested in are going to survive, but that they come out with more market share," he says.

One such company that should do well, he says, is Signet Jewelers (SIG). "It's gaining share [in areas] where a lot of mom-and-pop shops are closing," he says. The company renegotiated rates on its small amount of debt before the crunch, so it's in a good capital position relative to its peers, Herro says.

He's also watching energy and emerging-market stocks, though not making broad market calls. The way to make money, he says, is on a stock-by-stock basis, with companies that have strong balance sheets and proven business models. Two he likes: BMW (BMWG.DE) and luxury holding company LVMH (LVMH.PA).

A realistic average annual gain for his fund, Herro figures, would be in the low double digits, partly because he expects lower returns from emerging markets. "A year ago, if you looked back, you saw artificially high rates of return," he says. "Now you see artificially low rates. But most of the adjustment has taken place."

MacBooks and Big Macs

Tom Marsico, 53, of Marsico Capital Management, is also bargain-hunting. Stocks are as cheap as he has seen in his 30-year career, he says. Marsico thinks rebuilding consumer confidence is the key to seeing the market improve. Since November—when the Federal Reserve announced plans to buy bad mortgage debt from government-sponsored enterprises—he has reduced the cash in the $2.5 billion Marsico Focus Fund from as much as 20% to low single digits. In the next four weeks, the fund gained 16%.

Marsico favors big companies, such as McDonald's (MCD), that hold major market share in industries with high barriers to entry. Lately he has added to his stakes in Wells Fargo (WFC) and U.S. Bancorp (USB), both of which he believes will benefit as the period of weakness in housing nears its end. He also likes Visa (V), MasterCard (MA), Apple (AAPL), and Target (TGT). He figures lower gas prices and mortgage rates, combined with economic stimulus, will boost consumer spending.

Kalwarski is Numbers department editor at BusinessWeek.