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Some managers ferret out value in stocks that stumble but have recovery potential

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Much has been written about the demise of the American hero. In the world of corporate mythology, however, few would deny Lee Iacocca a place in the pantheon of heroes, turning Chrysler around as he did.

Slightly less well known are the heroic exploits of Victor Palmieri, who turned the assets of the bankrupt Penn Central Railroad into a thriving company. Mr. Palmieri has recently been tapped to try the same miracle with Baldwin-United, the high-flying insurance conglomerate that recently went into Chapter 11 bankruptcy.

The phenomenon of dramatic corporate turnarounds is not a recent development. In 1919, William C. Durant turned a weak General Motors - the Chrysler of its time - into one of the giants of American industry.

If such men are lauded as heroes, the people who have faith in these executives' abilities and who invest in their companies while they are still downtrodden are also minor heroes, as they are frequently able to achieve some of the most impressive stock market profits.

Anyone who invested in the financially troubled Chrysler back in 1981, when the stock was selling at less than $3 a share, would be holding a share worth some $30 as of mid-October. (Chrysler stock rose as high as $35 during the past year.) In fact, one of the most successful mutual funds - Fidelity's Magellan - racked up its impressive gain of over 100 percent last year by having a large block of Chrysler stock in its portfolio.

Such rosy results have not been lost on the professional investment community which creates and manages mutual funds. Recently, two mutual funds have been launched to take advantage of what Lord Abbett & Co. refers to as ''unusual capital appreciation.'' In the spring, Lord Abbett, well known for its Lord Abbett Development Fund - one of the original OTC (over the counter) mutual funds - brought out its newest offering, the Lord Abbett Value Appreciation Fund (known within the company as LAVA). And last autumn, Merrill Lynch introduced its Phoenix Fund, which is specifically designated to invest in high-risk strained companies.

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