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The bright side of turmoil
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December 1, 2000: 3:19 p.m. ET
For the value investor, stock strategists say maybe this market isn't so bad
By Staff Writer Martha Slud
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NEW YORK (CNNfn) - As portfolio manager for the Mutual Shares value fund, Larry Sondike scours the market for beaten-down stocks that he thinks have been oversold in a market increasingly focused on gloom and doom.
He has a lot to work with these days.
With only a few weeks left, 2000 is shaping up to be a pretty rough year for U.S. stock investors, with all the major indices trading in negative territory. But for a value investor, these topsy-turvy times have created some big opportunities for those looking for solid companies that have gotten socked unjustifiably amid overall investor panic, says Sondike, whose Mutual Shares fund has risen about 7.4 percent this year.
"There are a great many things to work on," he said. "There is no dearth of merchandise whose prices have been under tremendous pressure."
Market watchers say that as the slowing economy and technology-related market turmoil have taken their toll, stocks in sectors ranging from retail to publishing have become attractive.
 Several sectors of the market have in fact done pretty well in this market, including food stocks, traditional media companies, and, perhaps most notably, health care.
A.C. Moore, chief investment strategist at Dunvegan Associates, recommends that investors take a look at candy makers such as Hershey Foods Corp. (HSY: Research, Estimates), Tootsie Roll Industries (TR: Research, Estimates) and Wrigley (WWY: Research, Estimates), as well as spice maker McCormick & Co. (MKC: Research, Estimates). All are trading near their 52-week highs.
"People are going to eat Hershey bars and Tootsie rolls no matter what," he said. "There's consistent and constant demand."
Special Report: Eyes on the Market
But, Moore notes, many food stocks have risen sharply in the past few months as investors have searched for safe havens. That's raised concerns that these stocks may no longer be good buys, he said.
Health stocks have recorded a rip-roaring year, and Moore says there are several prime value plays available, such as drug and medical testing maker Abbott Laboratories (ABT: Research, Estimates). Abbott stock is up 46 percent this year.
Pharmaceutical stocks also have provided some gains, he said. For the year so far, the American Stock Exchange Pharmaceutical Index has risen about 22 percent.
However, experts say that investors looking for value should be wary of the biotech sector. The sector has racked up sharp gains this year – with the Nasdaq Biotech Index up 26 percent -- but most of those gains were accumulated in the early part of the year and many stocks in the sector have crumbled from their highs. For an investor looking for bargains, this isn't the place, said Sondike.
 "I don't see any value in the sector," Sondike said. "The securities have tremendous expectations built into them. There is no margin of safety. If a company misses a number or forecasts something that comes in below expectations, I think that there could be tremendous pain suffered by those who invest in that sector."
Biotech investors who bought in at the ground level of many stocks are still sitting on some healthy gains. A company such as Genome Therapeutics Corp. (GENE: Research, Estimates), which uses discoveries about the composition of the human genome in research about new drug candidates, traded at a little more than $3 a year ago, surged to about $75 in February, and has now fallen back to about $12.
The volatile biotech sector isn't exactly a value area, but there are some segments of the sector that have been seriously oversold, said Alidad Mireskandari, fund manager of the Monument Medical Sciences Fund and the new Monument Genomics Fund.
"The bargains are in the brand names," he said. "The highly liquid gems trading at five or six bucks are not going to get the kind of run on their prices in the long term" like they may have before, he said.
Another sector that strategists say may be worth a look is retail. Sondike recommends selected names in the sector, such as Federated Department Stores (FD: Research, Estimates), which he thinks is undersold. Federated, operator of Bloomingdale's and Macy's, trades at about $31, down from a 52-week high of $53.87.  In the media sector, he recommends stocks including The Washington Post Co. (WPO: Research, Estimates) and E.W. Scripps (SSP: Research, Estimates).
"These companies are asset rich, trading at big discounts and run by strong managers," he said.
And scary as it may be for some investors to tread back into the tech sector, market watchers say the beaten-down sector may hold some of the market's best values right now.
"The value is starting to be in some of the technology issues – Hewlett-Packard (HWP: Research, Estimates) and even Sun Microsystems (SUNW: Research, Estimates) and Oracle (ORCL: Research, Estimates)," said Moore. "Those are issues that are beginning to offer some value, where we're likely to see a tradable lift over the next few weeks."
Market strategists also caution that just because a stock is cheap, it doesn't mean it's worth buying. Sondike says his value fund looks for top-notch companies that are worth a lot more than their current valuations.
"We try to buy them when they're out of favor," he said. "We're trying to find good businesses that the market is selling." 
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