Given recent events, Tyco is not the kind of stock that most financial advisors would recommend for a client's portfolio right now. In June, former chief executive Dennis Kozlowski was indicted on charges of evading more than $1 million in New York State income taxes on $13 million worth of art purchases. Since then, new revelations about the company's costly junkets and questionable loan programs for top executives have surfaced in media reports. In the last year, the stock has fluctuated between $60 and $7 a share, and was trading at around $14 in mid-August. The only good news came on August 19 when the new CEO asked the entire board of directors to resign and shares surged 9%. But where some investors smell trouble, Donald Yacktman, manager of the $170 million Yacktman Fund, smells opportunity. Yacktman began loading up on Tyco in June soon after the flood of bad news began to break and its price plunged. His average purchase price was just under $9 a share, and he likes the stock so much that it now accounts for about 10% of fund assets. Yacktman believes investors are overreacting to the company's tribulations. "This is not an Enron," he says. "This is a conglomerate with real, legitimate businesses whose manager did some dumb things." By selling off some of its holdings and appointing a new chief executive officer, he adds, Tyco is taking steps that will eventually help bring the stock back into favor. Controversial bets like Tyco are nothing new to the 61-year-old manager. For decades, Yacktman has been known for pushing the envelope of value investing by putting money into companies that almost everyone else is ignoring or selling at the time he buys them. And he isn't afraid to keep 10% or more of fund assets in stocks that he feels have the greatest potential to come roaring back, adding octane to his deep-value investing style. Those looking for an even more concentrated portfolio can invest in the Yacktman Focus Fund, which has just $14 million in assets. The strategy won respect when Yacktman managed Selected American Shares from 1982 to 1992. In 1991, the year before Yacktman left to launch his own fund, Morningstar named him its portfolio manager of the year. Over the last two years, as the broad market averages have gone into a tailspin, the Yacktman Fund has been a standout performer. In 2001, the fund gained 19.5%, beating the S&P 500 Index by more than 31%. It is up 5.2 % this year as of mid-August, beating the index by roughly 24%. Those numbers stand in sharp contrast to 1998, when the fund gained less than 1%. Its 17% loss the following year put it behind the performance of the S&P 500 Index by a gaping 38% and among the bottom 2% of mid-cap value funds, according to Morningstar. If advisors need a manager who can zig when the market zags, Yacktman's the man. Performance troughs aren't terribly unusual among funds that subscribe to a deep-value philosophy. In fact, investors in such funds should be willing to wait five to seven years for the strategy to play out, says Ronald W. Roge, CFP, president of R.W. Roge & Co. in Bohemia, N.Y. "In that time frame these funds may not have spectacular relative performance," he says. "However, when the underlying values are recognized, performance is dramatic and may occur in a relatively short period of time." What is unusual about the recent fall and subsequent rise of the Yacktman Fund is both the magnitude of the decent, particularly in 1999, and the very public drama that played out the year before in an industry known for keeping a tight lid on its internal controversies. In 1998, several members the fund's independent board of directors waged an aggressive and well-publicized battle to oust Yacktman. Their primary concern was that he had strayed from fund policy by drifting from larger to smaller companies, which were performing poorly at the time. Yacktman countered that he was investing in smaller stocks because larger companies had become overpriced, and that the strategy was consistent with fund policy. In response, he called for a proxy vote to oust four of the fund's six directors, and to add three new directors he recommended. Shareholders voted in favor of the proposal. Yacktman calls the whole dogfight "a pitiful attempt" to gain control of the fund's management, and believes he had no choice other than to bring it public with a shareholder proxy vote. "There is a narrow difference between determined and stubborn," he says, referring to his refusal to buy pricier large-company growth stocks in the late 1990s that could just as easily apply to the board spat. "If you are proven right, then you are determined." Eventually, Yacktman would fit his own definition of determined as fund performance firmed up and the board controversy became a memory. Before that happened, the Yacktman Fund's assets would plummet from $1.1 billion at the beginning of 1998 to $307 million by the end of the year. By 2000, it had roughly $70 million in its coffers. The beleaguered manager had something working in his favor, though-a portfolio of incredibly inexpensive stocks of companies with solid businesses that began looking increasingly attractive compared with the pricey, overheated technology and growth stocks that had dominated the market in the late 1990s. Investors took notice, and the fund has received more than $100 million in new assets from them. Yacktman has put that money to work buying what he considers growth companies at low prices. Corporate characteristics he looks for include high market share for a principal product or service line, long product cycles and unique franchise characteristics. Managers must show a shareholder orientation by using excess cash to invest in their businesses, make synergistic acquisitions or buy back stock. While the portfolio holds a number of well-recognized names such as Coca-Cola and Tyco, smaller companies such as Lancaster Colony also are liberally represented. The maker of specialty foods and glassware, which has a market capitalization of $1.3 billion, has no debt and managers who have a history of buying back stock. To fit his pricing parameters, a company's stock should sell for less than what an investor would pay to buy the whole company. The valuations of the stocks in the Yacktman Fund reflect that view, with the weighted average price-earnings ratio of the portfolio coming in at 13.7, compared with 20 for the S&P 500 Index. Because the stock prices of many companies vary by 50% or more from low to high each year, Yacktman often lurks around until a buying opportunity presents itself. Such an opportunity arose in June when Yacktman began buying bonds issued by financially troubled Qwest Communications. (The fund's charter allows him to invest as much as 10% of assets in bonds rated below Aa, he says.) Yacktman believes that while the company's stock is risky-its price has plummeted from $26 a share to $1.12 over the last year-its bonds are well-secured by corporate assets. They currently trade at $410, and mature in 2010. Yacktman keeps tabs on Qwest and other holdings with the help of son Stephen, 32, a research analyst. Although the elder Yacktman says there are no immediate plans for a change in management, he does sound like someone who has given the matter ample consideration. "If anything ever happened to me, Stephen could take over at the drop of a hat and no one would notice a change," he says. He adds that his son "could be given a larger role at some point," and does not rule out the possibility that he could become portfolio manager. Whether Stephen Yacktman will successfully fill his father's shoes remains to be seen. But it is almost certain that as long as deep value continues to outperform most other styles of equity investing, the investment philosophy will gain new fans. In the eyes of some financial advisors, Yacktman remains one of the best fund managers to carry it out. "There will always be a place in diversified portfolios for good value managers like Yacktman," says Norman Fosback, editor of Fosback's Fund Forecaster newsletter and founder of Mutual Funds Magazine. "I suspect the value approach will rule the roost for some time to come, beyond its recent superiority. But the more extreme the investment philosophy deployed within a general investment category, the more extreme will be the performance. So eventually, Yacktman will be a poorer-than-average performer again. In the meantime, now is a good time to be buying Yacktman shares." Roge sees better value fund alternatives out there. "We like Oakmark, First Eagle SoGen Funds, Dodge & Cox, and Longleaf for deep value," he says. "They have larger organizations, more analysts and a deeper bench." Then there's the matter of the four-year-old board brouhaha that, at least in the minds of some financial advisors, isn't going away any time soon. "Any time there is turmoil in any fund organization, it is very distracting to the fund managers and analysts, and we are out of there as soon as possible," says Roge.