(MONEY Magazine) – Could Robert Sanborn be poised for a comeback? In 1998 and early 1999, the manager of the Oakmark Fund was on the defensive. But in April the market suddenly rediscovered value stocks, and as of mid-June, Oakmark was slightly ahead of the S&P 500 for 1999. Staff writer Pat Regnier caught up with Sanborn at an exhibit booth at the recent Morningstar fund conference.

Q. You've taken a lot of criticism from disappointed Oakmark investors. Do you react to that?

A. I was getting letters indicating that a lot of my investors really had no idea what we did. So I wrote a letter to shareholders in mid-March to explain things. The response was unbelievable. I got about 1,000 e-mails, and 90% of them were very positive. But 10% were like, "I don't want any excuses, I want to win every year." I think that's the average guy in the market right now. They're idiots and they're going to get hurt.

Q. Value stocks have been doing better recently. Is this the start of a lasting trend?

A. Yes. One sign of that: The growth companies are selling shares to the public as fast as the public will take them. They want to sell their shares to you because they want to cash out. There will be 150 dotcoms going public this year, and with so many of them, they'll be a lot less precious. But among the kind of value companies I look at, you're seeing acquisitions and stock buybacks, which means their shares are getting scarcer.

Q. What's your favorite stock right now?

A. At these prices, it's got to be Philip Morris.

Q. That stock seems to be killing more value managers than smokers. What's made you stick with it all these years?

A. At the current price of $42, you get most of the tobacco business, which provides two-thirds of Philip Morris' profit, for free. The company has a market cap of $100 billion. But its Kraft and international tobacco businesses are worth more than that, so the market is placing a negative value on the U.S. tobacco business.

Q. But the market is worried that lawsuits stemming from the U.S. tobacco business could bankrupt the company.

A. I don't see it. Because of state settlements, Philip Morris is safe from the really big third-party lawsuits. It will lose its share of suits brought by individuals, but those are very manageable. They could lose one suit a day every year and lose $10 million in every suit and handle all those costs by raising the price per pack in the U.S. by a dime. And they still have yet to pay a penny to a plaintiff.

Q. Mattel has been beaten down severely. Are you hanging in on that one too?

A. On Mattel, I'm violating one of my cardinal rules, which is to get out of a stock when the original investment rationale changes dramatically. Since I first bought Mattel three years ago, it's acquired Pleasant and the Learning Company--both of which I was skeptical of at the time. But Pleasant's American Girl dolls have broadened Mattel's product line, and the Learning Company is the top seller of educational CD-ROMs; in a few years it will be able to let customers download the software directly over the Net. We're talking 85% margins.

Q. The toy business is notoriously fickle.

A. Mattel is not a typical toy company. It has 20% of the market, and lots of evergreen products like Barbie and Hot Wheels. It has a franchise.