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Subject: MaKING Money I The Mutuals
Date: Wed, 18 Nov 92 12:51:16 EST
Message-ID: <7.1992Nov18.125116@AmeriCast.com>

11/18/92


TITLE MaKING Money I The Mutuals #m#wm#m#Nasdaq's Rally Lifts Op-
penheimer Discovery

Groundwork Was Laid During Mid-Year Slump, Tracey Says

Doug Rogers Jay Tracey tracks the recent rally in small-cap
growth stocks back to July.  That's when the correction of the
late- December, early-January runup got overdone, says the port-
folio manager of $357 million Oppenheimer Discovery and $370 mil-
lion Time-
 funds.  "Stocks with growth rates of 30% to 40% got well-
discounted to their growth rates," he said. "That didn't trigger
the upturn, but it set the stage." As the year wore on, investors
began giving up hope for a surge in big-cap cyclical stocks. They
turned instead to growth at a reasonable prices, he says.  The
general health of third-quarter earnings is underpinning the ral-
ly, he says. Most stocks in Tracey's portfolios came through with
good earnings.  "It helps to improve confidence when a group that
is perceived as volatile -like technology - begins to do better,"
Tracey said. "As people gain more confidence in the economy, they
become more willing to accept the additional volatility and risk
of investing in smaller companies." Expectations for continued
outperformance from small-cap stocks stems partly from their past
record during Democratic administrations.  "If small-cap stocks
respond positively to the expectation of a little fiscal stimulus
to the economy, that would be consistent with the historical
record," he said.  Another angle on that argument is that inves-
tors who feared the effects of a Clinton presidency on their
stocks sold before the election. Everyone worried about Clinton
already has sold.  Tracey is pinning his hopes on pockets of very
robust growth, such as computer networkers. "Networking companies
are just overbooked," he said. "They continue to see terriffic
upside surprises." Computer software and services make up 18% of
the portfolio, miscellaneous health-care issues 13%, specialty
retailing 12%, financial services 3% and restaurants 3%.  Among
networkers, Tracey holds Cisco Systems Inc., CrossComm Corp. and
Xyplex Inc.-

Discovery's top holdings is CML Group Inc., which makes Nordick
Track exercise equipment and operates Nature Co. stores.  The
second largest holding is Phillips-Van Heusen Corp., which has
been in the portfolio for a year.  "This company has been per-
ceived in the past as a leading manufacturer of men's dress
shirts," Tracey said. "But what people aren't as aware of is that
more than half of sales and more that two-thirds of operating
earnings come from the company's 600-plus outlet mall stores."
But they don't use the stores as a way to get rid of excess in-
ventory. They operate them as a primary business operation.  J.
Baker Inc. is the third-largest holding. It bought Casual Male,
which runs chain of large-size men's stores and shoe departments.
Michael Stores Inc. is the fourth-largest holding. The specialty
retailer of do-it-yourself crafts is expanding rapidly amid lit-
tle competition.  United Retail Groupis the fifth-largest hold-
ing. "These are former Limited Inc. people that sell large-size
women's clothing," Tracey said.  Other large holdings in
Discovery are SPS Transaction Services , a processor of financial
information; Green Tree Financial Corp., an originator of
mobile-home loans; Gendex Corp., which provides dentists with
equipment sterilization gear, and Sybase Inc., a maker of data-
base software.  Tracey says he wouldn't mind a short-term correc-
tion after the recent Jay Tracey

runup in prices. If the Nasdaq slips 3% or 4% in the next few
days, he wouldn't be surprised to see issues like Cisco slide to
about 60, or 17% off its recent peak of 723/4.  Discovery, which
has more than 100 stocks in its portfolio, picks companies that
have market caps below $500 million, although holdings may be al-
lowed to appreciate well beyond that level.  Discovery, a small-
cap fund whose median market capitalization is $250 million, is
rated A by Investor's Business Daily for its 1989-91 total return
of 97%. It's up 8% this year -12% in the past four weeks, after
having been down as much as 14% on June 22.

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