(MONEY Magazine) – GAINS FROM GROUNDED STOCKS

Talk about exquisite timing. Dave Parsons, 43, took over $708 million USAA Mutual-Growth in January 1994, just as the Dow Jones average neared its all-time high of 3978. Thereafter, the Dow dribbled downward, finishing the year 144 points, or 3.6%, below its peak. But Parsons managed a 3.4% gain, thanks largely to his 20%-plus stake in health-care stocks. His winning ways have carried over into this year as well: He's up 4.7% so far in 1995, vs. 0.9% for the average equity fund.

Parsons has reinvigorated this once mediocre no-load with an unconventional strategy of seeking out large or mid-size growth stocks at beaten-down prices--preferably 30% to 80% off their highs. "Many times, I'm buying when investors are afraid that the stock will keep plummeting," he says. Since such companies are often in the midst of profit meltdowns, he looks instead for annual sales gains of at least 8% as a sign of growth potential. Lately, his formula has steered him away from technology firms--a staple of most growth diets--and into pollution-control companies (7% of fund assets), such as Browning Ferris, and specialty retailers (5%), including The Gap and The Limited. He also has a 17% position in oil stocks.

Look for this 60-stock portfolio to "deliver steady long-term growth," says Steve Savage, editor of Value Line's Mutual Fund Survey. "And buying beaten-down stocks makes it less vulnerable to downturns than its peers."

--P.M.