risks and they can generate more revenues quicker than large companies can.” His holdings in that category are Hartford Midcap A (HFMCX), which has returned 15% a year for the last three years, and Hotchkis and Wiley Mid-Cap Value I (HWMIX), which has returned 20% per year.
“Lamont has a managed account, meaning that professionals choose the funds that suit his risk tolerance and time horizon,” says Turner’s financial adviser, James Johnson, in the Baltimore office of Raymond James Financial. “He was in large caps before but our model has him in mid caps, too, so he has more balance. Unless you want to do a lot of research yourself, you’re probably better off investing in mid caps and small caps through mutual funds.”
The bottom line is, the right mix of sleeper stocks early in the year could rouse even the sleepiest of portfolios.
John Rogers’ Sleeper Picks
When John W. Rogers Jr., Ariel Capital’s founder, chairman, and CEO, and John Miller, a senior vice president of Ariel’s portfolio management team, look at stocks, one critical number is the discount to private market value. That number refers to the difference between the current per-share price and what a sophisticated buyer would pay for the entire company. A steep discount could signal an even steeper profit potential. For example, if a $40 stock would bring $80 per share from an acquirer, it’s selling at a 50% discount: $40 less than the $80 per-share target price. Such a stock has the potential for a 100% gain, from $40 to $80.
For 2007, Rogers and Miller believe there are some real opportunities in the media and real estate space. According to Rogers, recent interest in the Internet has hurt publishing and advertising-related stocks. “The market fears media-related stocks will lose ground to new competition. We think these companies will do better than expected in this new environment.” Rogers and Miller realize that the housing market has peaked but feel that fears of a bust are overblown, so some stocks connected to real estate are selling at bargain prices:
McClatchy Co. (NYSE: MNI), publisher of daily newspapers including the Minneapolis Star Tribune, The Miami Herald, The Sacramento Bee, Fort Worth Star-Telegram, and The Wichita Eagle, borrowed money to acquire Knight-Ridder and some of its under-managed properties, Miller says. Better management will likely produce more free cash flow and allow the company to pay down debt. Recently selling around $42, down from $66 in late 2005, the company trades at a 40% discount to private market value.
Lee Enterprises (NYSE: LEE) publishes 51 daily newspapers and more than 300 weekly newspapers, mainly in midsized markets such as Napa, California; Bloomington, Illinois; and Madison, Wisconsin. Like McClatchy, it has taken on debt to make acquisitions, pressuring the stock price from $41 to $25, but Lee’s new strategy should pay off in 2007. The estimated discount is also 40%.
Journal Register Co. (NYSE: JRC) focuses its publishing in the Northeast and Midwest. The company is attracting private equity interest, indicating that sophisticated investors