Robert Brody has a way with animals and with bank stocks.

Mr. Brody, a gentleman farmer who raises sheep, pigs, and llamas, among other animals, is also a money manager with the demonstrated ability to pick big winners in the bank merger sweepstakes for American Growth Fund.

Last November, with interest rates rising and bank stocks mostly in the dumps, Mr. Brody spent around $3 million to buy 100,000 shares of New Jersey's Midlantic Corp.

It was a significant move. Like the stock market generally, the Denver- based mutual fund had not done well for the year, and Mr. Brody was more inclined to cash than equities at the time.

The bet paid off handsomely last month, when Midlantic sold out to Pittsburgh's PNC Bank Corp. American Growth Fund's stake is now worth over $4.8 million, for a gain of 60%.

"It worked out very well for us," said Mr. Brody, whose 37 years at the helm of American Growth Fund make him the dean of active growth mutual fund managers.

This wasn't the first time the manager of the $94 million fund has done well by anticipating bank mergers, one of his prime investment stratagems.

Mr. Brody doubled his money in Chicago's Continental Bank Corp. when it was sold to BankAmerica Corp. He did well when Baltimore's MNC Financial was bought by NationsBank Corp.

He also foresaw and profited from buyouts of Colorado's top three banking companies by Norwest Corp., Banc One Corp., and First Bank System Inc.

"I've always aimed for banks that had a good chance of being taken over, but would do well on their own in the meantime," Mr. Brody said last week in a telephone interview from Denver.

Besides Midlantic, American Growth Fund has acquired stakes in three banks: City National Corp., First Interstate Bancorp., and, most recently, SouthTrust Corp.

American Growth has 200,000 shares of City National, based in Beverly Hills, Calif. Mr. Brody bought it in the $6-$7 range early last year, and it is now selling around $13, giving him a million-dollar profit.

"I felt the stock was far undervalued, given the wonderful franchise they have, and that someone would want to buy them when the California economy improved," he said.

"As it turns out, the stock has doubled in value without a takeover," he said. "But I think the stock can still go up more on its own and that it will be taken over at some point at a good premium price."

The fund owns 40,000 shares of First Interstate, based in Los Angeles. It is another bank stock that Mr. Brody said he thinks is undervalued and can rise on its own in advance of a takeover.

His First Interstate investment is currently worth $3.5 million and he has an unrealized profit of $400,000 in the stake.

This summer, Mr. Brody acquired 40,000 shares of SouthTrust, of Birmingham, Ala., for about $1 million. He said he likes the 13.5% annual earnings growth outlook for SouthTrust, and also views it as a takeover candidate down the road.

Financial stocks, including banks, make up about 15% of the American Growth portfolio. So far this year, the fund is up 23% in value, compared with a slide of 4% last year.

Mr. Brody remains attracted to banks, because he views them as fairly inexpensive stocks to buy.

His interest sometimes goes beyond strictly potential acquirees. In recent years, he has owned stakes in money-center banks, including New York's Citicorp, Chemical Banking Corp., and Chase Manhattan Corp. Low valuations were the attraction.

"You can buy a lot of banks for seven to 12 times earnings, while many stocks sell for 14 to 15 times earnings," he said.

Moreover, he said he believes they carry relatively low risk. "Bank earnings are doing well, and I think their earnings will continue to grow," he said. "I see no justification for the big discount they get from the market."

Mr. Brody, who is 69 and commutes to work from a small farm in the Denver suburbs, made significant profits in bank stocks after they rebounded from credit problems at the beginning of the decade.

Then, banks constituted the biggest single part of his portfolio. Today, pharmaceuticals do, although the single largest holding by the fund is in UAL Corp., an airline stock.

Early in 1994, he sold out all his holdings of banks as interest rates began rising. But in March that year he began rebuilding his banking stock position with the purchase of the City National stake.

As for the current environment in bank stocks, he noted that "you have to have a considerably sharper eye as an investor than a few years ago, when banks were much more depressed."

And he said he thinks the days of making tremendous profits from banking takeovers may be gone with the wind. Midlantic was still low-valued because of severe real estate problems it had several years ago.

But consolidation in the industry will continue "and money is there to be made," he said. In fact, he said he is expecting the pace of banking deals to pick up.

Of course, Mr. Brody has not always been right in picking future acquisition candidates from the roster of banks.

He sold shares of Fourth Financial Corp., Wichita, Kan., several years ago after concluding at the time that its management was determined to stay independent course. Fourth Financial said last week it will be acquired by Boatmen's Bancshares, St. Louis.

And he once owned a stake in BayBanks, Boston. "I talked to the management and got the feeling they didn't want to be acquired, so we sold in March 1993. Put in $1.5 million and got $3 million."

But he said he feels the streak of independence at many banks is clearly on the wane.

"I think a lot of banks are realizing it is going to be tough sledding to go it on their own," Mr. Brody said, "and that their shareholders will be better off if they merge with one of the superregionals."

In fact, Mr. Brody has a high opinion of bank deals. "A lot of mergers in other industries have been disappointing. But in banking there are almost always substantial cost reductions from mergers. I think that will continue to be true."

Part of the portfolio manager's optimism about banks stems from his overall view of business conditions.

"I think the Federal Reserve has done an excellent job of keeping the economy on an even keel. They have avoided the boom-bust cycle and managed a soft landing," he said.

As a result, he sees "several more years of prosperity." But he is wary of one group of stocks: retailing. He feels the high levels of consumer debt may cast a pall over growth in this sector.

A native of Chicago, Mr. Brody moved with his parents to Denver in 1932 and began running American Growth Fund in 1958.

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