(MONEY Magazine) – THE DOW HIT 4554, ITS 38TH RECORD high so far in 1995, soon after I rang up Robert Marcin to ask how he's trounced the market not only this year but also over the past five. "The stocks that we buy have already had the risk knocked out of them by 20% to 30% declines relative to the S&P 500's return," said Marcin, 35, co-manager with Morris Williams, 55, of the red-hot $1 billion MAS Value stock fund. Such laggards, Marcin contends, can best withstand the market correction he sees coming before year-end. The sell-off could slam the average down as much as 10% to around 4100. Worse, he thinks that most stocks will limp back slowly, limiting investors to meager 5% to 7% annual returns for the next two years. Note that MAS Value has been amazingly on the money since Marcin and Williams teamed up in 1990 at fund sponsor Miller Anderson Sherrerd (800-354-8185), a Main Line Philadelphia money manager that runs a total of 23 no-load funds and has $33 billion under its control. Over the past five years, 12-year-old MAS Value has earned 16% annually, vs. 11% for both the S&P 500 and the fund's growth and income peers. How about '95? The fund's 25% return to date was among the pacesetters in its group, which gained an average of 18%, and well ahead of the S&P 500's 21%. What's equally impressive is that the fund was 40% less risky over the past three years than stock funds overall, according to calculations supplied by fund ranker Morningstar.

Why haven't you read about Marcin and Williams before? Simple. Investing in MAS Value requires a cool $1 million initial ante that's way too steep to qualify for Money's fund database. But you can easily buy into the fund with as little as $2,500 via discount brokerage firm Charles Schwab. Says Marcin: "Retailing the fund through Schwab helps us keep expenses at a lean 0.6% of assets," compared with stock funds' bloated average of 1.5%.

The managers' golden touch is a low-risk, long-range strategy that's commonly called value investing. They prospect from Value Line's universe of 1,700 widely held stocks and buy only those whose price/earnings ratios fall into the two lowest quintiles. These lately were made up of stocks with P/Es below 10.7 and 13.5 respectively, vs. 14.6 for all 1,700 companies. Based on analysts' profit projections for the next 12 months, the fund's holdings have a P/E of just 10, or 23% below the S&P 500's 13. Of course, stocks often sport artificially low P/Es derived from unsustainable peak earnings or profit margins. To avoid such value traps, Marcin applies another test -- price-to-sales ratios (explained on page 157). The fund favors stocks that are trading at only 67% of annual revenues, vs. the market's 100%. He also usually sells a stock as soon as its P/E spurts above Value Line's bottom two quintiles.

Marcin recommends three bargain-priced holdings that he figures can buck the 10% market decline he foresees and then return 32% as a group over the next 12 months (see the table below). He also names three stocks his fund recently sold because they appear fully priced. All six trade on the New York Stock Exchange.

-- Buy RJR Nabisco (ticker symbol: rn; lately $28; 5.4% yield). Whatever one's view of RJR's Winstons and Camels, says Marcin, don't blow off the profit potential created by the stock's 30% decline from its '94 high of $40. Amply reflected in today's battered price are flat 12-month sales of $15.4 billion and mounting lawsuits that claim the tobacco companies are liable for many smoking-related illnesses. What's overlooked, he argues, is the likelihood that earnings can surge 29% this year and 19% next, propelled in part by RJR's first wholesale price hike of 3% (3¢ a pack) in two years. While Marcin doubts RJR's risk of losing a smoking lawsuit is greater than that of $66 billion tobacco behemoth Philip Morris, PM's $70 stock trades at 91% of sales, or 60% richer than RJR's 57%. Says Marcin: "We're betting this disparity between the two stocks will shrink a lot in RJR's favor over the next 12 months," helping to lift its shares 25% to $35. That's a 30% return, including the stock's annualized $1.50 dividend.

-- Sell American Brands (amb; $40; 5%). In December, this $12 billion consumer-goods conglomerate cut its exposure to the cigarette business by selling American Tobacco, source of 12% of revenues, for $1 billion. Marcin notes, however, that foreign smokers still account for nearly half of amb's total sales via Benson & Hedges maker Gallaher Tobacco in Britain. Thus the stock seems overpriced at 14.2 times forecast 1995 profits, vs. 9.6 for RJR and 10.9 for Philip Morris. So he sold his American Brands stake at $40, a 25% profit over three years. (For an opposing take on amb, see Dan Dorfman's column on the company in the May issue of Money.)

-- Buy Providian (pvn; $36; 2.5%). Never mind that profits at this $25 billion (in assets) multiline insurer have risen 11.5% annually over the past decade. The stock is still 20% below its '93 peak of $45. Why? Marcin says investors are spooked by a mere 3% slip in earnings over the past two years. Yet he believes the culprit is a nonrecurring one-namely, losses inflicted by the bond bust of '94 on Providian's investment portfolio. Over the next 12 months, he expects profit growth to return to roughly a 10% annual clip that reassures investors and helps elevate the stock 33% to $48 (roughly a 36% return counting dividends).

-- Sell C.R. Bard (bcr; $30; 2%) and Becton Dickinson (bdx; $59; 1.4%). Marcin cashed in both medical supply stocks as their prices topped 150% of sales and P/Es rose above Value Line's two lowest quintiles. Disappointing sales gains at $1.4 billion Bard prompted him to slash estimates for '95 profit growth, from 21% to 13%, and sell at $30 (a 36% gain over 18 months). Conversely, a market-beating 21% rise this year in the stock of $2.6 billion Becton Dickinson prodded Marcin to take his three-year profit of 67% at an average price of $50.

-- Buy Federal Express (fdx; $62; no dividend). The stock of this $9.2 billion leader of the express delivery field has dropped 23% from its $81 apogee a year ago on fears that profit-crimping price wars will again erupt as soon as the economy stalls. Marcin doesn't buy either concern. He figures net profit margins at FedEx, already a slim 3%, could approach 5% in two years as the firm continues to improve its efficiency at home and abroad. And he's betting the economy will be stronger a year from now. "If we're right," says Marcin, "FedEx could be an $80 stock." And investors would be 29% richer.