Inside Wall Street
BARGAIN-HUNTING IN THE WARY CLINTON MARKET
When the stock market started plunging on the morning of Feb. 16, investment manager Mark Tavel's eyes widened--in delight. "Now I can buy the stocks that have been galloping away from me," he said. So as the Dow Jones industrial average plummeted to an 82-point wipeout the day after President Clinton's televised address on boosting taxes, Tavel, president and chief investment officer of Rothschild Asset Management, bought heavily.
Topping his list: Varity, formerly known as Massey-Ferguson, a worldwide manufacturer of agricultural tractors and diesel engines as well as industrial equipment and automotive products such as antilock brakes.
The stock had been on the rise since early 1992 when it was trading at 12 a share. It climbed as high as 29 this February before slipping to 26 on Feb. 16. "We liked the stock at 28 to 29, so scooping it up at such a bargain price is a gift," says Tavel. He steers some $800 million at Rothschild Asset, a wholly-owned unit of Rothschild North America Inc., which is owned by the British and French Rothschilds.
Tavel tracks about 850 stocks but he only has 75 stocks in his portfolio, consisting mainly of small- to mid-caps. He thinks that this group will produce the biggest winners. His strategy is to anticipate surprises and changes in investor perception. "The first change in an analyst's earnings estimate alerts us to the potential boost, or damage, in the company involved," explains Tavel. So far, Tavel's style has worked: Rothschild Asset was up some 40% in 1991 and 13.5% in 1992, vs. Standard & Poor's 500's 30% and 7.7% gains,respectively.
HIGH GRADES. "Varity is definitely the play on the turn in the U. S. economy. And when the situation in Europe starts catching up, it will add another leg to Varity's growth," says Tavel. Analysts, he notes, have been scaling up their estimates for Varity, which he figures broke even for the year ended Jan. 31, 1993. He sees a net of $3 in fiscal 1994 and $4 in 1995.
With such growth, Tavel thinks the stock could trade at a price-earnings ratio of 15. Based on the $3 estimate for 1994, that would boost the stock to 45. The company, notes Tavel, has been restructuring by aggressively cutting costs and debt, as well as diversifying. Varity's 50%-owned Wheels International unit is a major maker of automotive brake systems and trades on the Big Board at 18. Another Varity bull is investor Mario Gabelli, whose investment group has bought a 12.6% stake.GENE G. MARCIAL