Searching For Industry Leaders? Don't Overlook Solo Market Stars.(MAKING MONEY)(INVESTOR'S CORNER)

Byline: KEN HOOVER

Many mutual fund managers like to boast they're bottoms-up investors.

That means they search for companies with great prospects regardless of the industry group or sector they're part of.

You can learn a lot from these managers. Industry groups are important. But don't make them the starting point of your system for prospecting for winning stocks.

Occasionally, big winners come from weak industry groups. Maybe they have a unique product or service. Or the group contains diverse companies whose stocks don't move in tandem.

Take the example of Direct Focus in November 1999. At the time, the top groups related to the Internet, semiconductors and telecommunications. Direct Focus sold exercise equipment under the Nautilus and Bowflex names. (It now trades under the name Nautilus Group.)

It was part of the Leisure-Products group, then ranked 115 out of 197. The industry group Relative Strength Rating was C. A top-down investor who starts by looking for the best companies in the top groups would have missed this winning trade.