Lowell on Leviton

04/16/2004 12:00 am EST

Focus:

Jim Lowell

Senior Partner & Chief Investment Strategist, Adviser Investments

After having been closed to new investors for eight years, Fidelity Value Strategies has reopened. The fund, run by Harris Leviton is a favorite of Jim Lowell, editor of Fidelity Investor and Fidelity Sector Fund Investor. Here, he interviews Leviton, a "contrarian with a catalyst."

"Our Aggressive Growth portfolio is up 8.8% for the year, versus a loss of 0.4% for its NASDAQ benchmark, and our largest holding in that portfolio-26%-is Fidelity Sector Value Strategies (FSLSX). This unique fund is well-managed by Harris Leviton. The result is a portfolio with its largest holding among such companies asTyco International (TYC NYSE); WMS Industries (WMS NYSE); Ace Ltd. (ACE NYSE); Beazer Homes (BZH NYSE); THQ (THQI NASDAQ); Vignette (VIGN NASDAQ); and Jones Apparel  (JNY NYSE). Meanwhile, I'll be looking to Leviton for some upside surprises in areas of the market that others are either overlooking or underestimating." Here are highlights from Lowell's interview with Leviton:

Lowell: Let's begin by describing your investment style and your fund's objectives.

Leviton: I look for value, but with a catalyst. I don't like to buy stocks just because they're cheap. I try to look for situations with catalysts so I can get a little more reward for a little less risk. In the past, I've found them mostly in the small- and mid-cap area because those stocks tend to trade at a discount to their larger counterparts, and also they tend to be affected by specific product cycles. I look for bad news, and I like to see how people react to it. And not every piece of bad news is an opportunity- sometimes it is, and sometimes it's a great opportunity. I've also made a fair amount of money over the last year and half in accounting fraud situations because those are situations where panic-stricken people have purged these stocks. So I've been able to pick up some really great companies at pretty good valuations. This is a very opportunistic fund. It is a stock picking fund and a sector-oriented fund. That's what I really focus on and that's what I stake my reputation on.

Lowell: What's your definition of 'catalyst' and 'value'?

Leviton: "In terms of defining 'catalyst.' I would say that a lot of times the reasons a stock is cheap is that it has made mistakes or had some problems. So I look at a stock and ask, why is this stock cheap? A lot of times there is a good reason, like the CEO was arrested or the company is going out of business. But a lot of times it's a temporary reason. And when I can find what I feel is a temporary reason, or I can anticipate a product cycle-something that will get better down the road- that's when you can really buy a good company cheap.

Lowell: Let's drill down into 'value' and technology stocks, which comprise over 40% of your fund's assets:

Leviton: "I think there's still a ways to go on technology. And I think many of the small- and mid-cap stocks still have some room to run. When people talk about technology, they frequently focus too much on big-cap stocks, many of which are sluggish in terms of their fundamentals. But some of the smaller companies have very good dynamic fundamentals, and I think they are particularly exciting. Also, we're in the phase now where the larger companies are starting to get a little more confident in the business outlook, and when that happens you'll start to see merger and acquisition activity pick up. So I think there are still some legs there."

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