Fidelity mutual fund manager targets good fundamentals, reasonable prices

April 19, 1992|By Mark Calvey | Mark Calvey,Knight-Ridder News Service

While some investors are bidding up their favorite growth companies to all-time highs, others are looking for growth at the right price.

Jeff Vinik, who runs the $3.8 billion Fidelity Growth & Income Fund, is one such investor.

"I try to find companies with good fundamentals at reasonable valuations," said Mr. Vinik, 33.

His investment strategy has resulted in an eclectic portfolio that has generated strong returns.

The fund is up 16.44 percent for the 12 months that ended March 31, according to Lipper Analytical Services Inc., a mutual fund rating service in New York. For the three years that ended March 31, the fund gained 62.04 percent, Lipper said.

Mr. Vinik said his definition of reasonable valuation depends on the company and its industry category.

Financial stocks are expensive when trading at 10 to 12 times earnings, but industrial or growth companies could be attractive at those levels, Mr. Vinik said.

He is concentrating on energy, utilities and technology, with 10 percent of the fund's assets in each sector. "I'm in energy because it's the cheapest segment of the market at this time," he said. His energy holdings include several major oil companies, such as Chevron, Mobil, Exxon and British Petroleum.

He also holds oil-related stocks such as Dallas-based Halliburton, which deals in oil-field products and services.

Mr. Vinik said his investment in utilities, with their relatively high dividend yields, helps him achieve the fund's income objectives. He holds stakes in Philadelphia Electric, Niagara Mohawk Power, Entergy and Long Island Lighting.

Technology stocks are the second-cheapest segment of the market after energy, he said.

One of the fund's largest technology holdings is Amdahl. The Sunnyvale, Calif.-based company makes large, high-performance computer and storage systems.

Another Sunnyvale company, Advanced Micro Devices, is in the fund's portfolio. It makes integrated circuits for various telecommunications and computer equipment.

The fund's portfolio turnover -- the number of times securities are replaced each year -- is high for a growth-and-income fund.

Amy Arnott, an analyst with the Chicago-based mutual fund rating service Morningstar Inc., wrote in a recent report, "Vinik has little patience for poor performers. He got rid of Ford and General Motors [last year] when they continued to post disappointing results."

Some investors fear that a high portfolio turnover will lead to higher trading costs for the fund. But turnover rate should be viewed in the context of performance.

In the case of Fidelity Growth & Income, Mr. Vinik turned over the portfolio more than three times in achieving a 41.84 percent return for 1991. By comparison, the unmanaged Standard & Poor's 500-stock index rose 30.47 percent last year, including reinvested dividends.

One of Mr. Vinik's major holdings is Avon Products. "I love Avon Products," he said. "Eighty percent of its earnings are from overseas."

The "Avon lady" is popular in countries with poor retail distribution systems, he said. Avon is doing well in Eastern Europe, South America and the Far East, he said.

Avon, which has been in the fund for about a year, is selling for 13 times this year's earnings, Mr. Vinik said. He expects the company to post 15 percent annual earnings growth and plans to hold the cosmetics retailer for about three more years.

He bought Valasis, which inserts coupon supplements into Sunday newspapers and is selling for 10 times earnings.

Mr. Vinik also has bought more than 1 million shares of Greensboro, N.C.-based Burlington Industries.

Burlington, among North Carolina's largest employers, makes textiles for apparel, home furnishings and carpet manufacturers. The company has 27 plants and 13,100 employees in the Carolinas.

Mr. Vinik, who went to work for Fidelity in 1986, said he enjoys managing money for several reasons. "I enjoy the competition . . . and discovering new ideas," he said. "I enjoy the relatively quick gratification one gets from seeing a stock rise."

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