Charting a course: Terry Bedford sees a bigger picture in stock price charts and trading volume data. (Private Screening).

Whether the economy is on its way up or down, at the end of the day, there's only one thing that matters for money manager Terry Bedford: a stock's price. "When it comes to markets, perception is always more important than reality," he says. "What people actually think about the economy tends to be more important than what the economy is actually doing because those feelings, those perceptions will impact stock prices more so than any bit of news."

In fact, his Toronto firm, Bedford & Associates Research Group, which oversees $37 million, relies heavily on technical analysis--examining supply and demand within the stock market to track investors' perceptions. Bedford, 38, who also writes a regular investing column for MSN.com, watches a stock's price charts and additional data to see how many company shares are trading on any given day. That information tells him about a company's future. If the charts show a healthy rise in the stock's sales and earnings, financial firms and individual investors will probably want to buy, hoping to bag a gain. If there's a big increase in a stock's trading volume, it's an indication that a stock is gaining popularity and that demand for the company's shares is outstripping supply, a factor that will push prices higher.

Two of Bedford's picks, Verizon (NYSE: VZ) and SBC Communications (NYSE: SBC), are good examples of his theory. Bedford says Baby Bells should rebound nicely once the shakeout in the telecom industry finishes. More importantly, a scan of the price charts shows Verizon has fallen to around $30 a share twice in the past few months without dropping further, instead rebounding in heavy trading. SBC has slid to about $21 twice over the same period without breaking through, again rising afterward on substantial volume. Bedford says both stocks have a "floor" or support level. The fact that Verizon and SBC have bounced back from their lows probably indicates that the big institutional investors feel both stocks are a bargain and should return to higher ground soon.

In addition to examining charts, Bedford reads up on company fundamentals and news as a way to double check his technical analysis. The manager says indications show Walt Disney Co. (NYSE: DIS) will probably cut costs and develop new strategies to profit from its many media businesses over the next few years. He also observed that during Disney's rebound this fall, the stock price rose on higher trading volumes.

Another selection, 3M (NYSE: MMM), has seen daily volumes of 7.5 million shares accompany a recent climb in value. Bedford says the company's management is solid and has done a good job leveraging what he calls a "massive library of patents." Finally, Bedford thinks a beleaguered Xerox (NYSE: XRX) is a good speculative play. Although the company hit a low point this summer as a result of accounting and managerial problems, Bedford says a rebound could be imminent. Xerox, he notes, also has a treasure trove of valuable patents, and institutional investors have consistently rushed in to buy shares whenever the stock has fallen to the $4 level.

Overall, Bedford thinks a mild rally this past fall will probably be followed by another marked drop in share prices. "After that, I think there's a chance the market could rise as much as 50% in the year ahead."

Terry Bedford's Private Screening Picks

                                                         Est. 5-Yr.
Company                              P/E on Projected    Annual EPS
Exchange: Symbol          Price *     2002 Earnings      Growth Rate

Walt Disney Co.           $16.08            33.4             12
NYSE: DIS

Verizon Communications     34.71            13                6.8
NYSE: VZ

SBC Communications         22.40            12.3              0.65
NYSE: SBC

3M                        120.95            24.6             11.4
NYSE: MMM

Xerox                       5.28            30.8             14.8
NYSE: XRX

Company
Exchange: Symbol          Why Stock Will Outperform

Walt Disney Co.           Disney is cutting costs at ABC, while
NYSE: DIS                 banking on the strength of its large
                          library of characters.

Verizon Communications    The Baby Bells should come out of the
NYSE: VZ                  recent telecom slump stronger and ready to
bounce back.

SBC Communications        Like Verizon, SBC is cheap. The company
NYSE: SBC                 should also be able to expand through an
                          industry fire sale.

3M                        Not only is 3M's management currently the
NYSE: MMM                 envy of the corporate world, it also has a
                          Fort Knox of patents.

Xerox                     Although Xerox has come under pressure, a
NYSE: XRX                 change in management will right the
                          company's course.

* AS OF OCT. 14, 2002

SOURCES: TERRY BEDFORD, BEDFORD & ASSOCIATES RESEARCH GROUP;
MORNINGSTAR INC.; YAHOO! FINANCE; ZACKS INVESTMENT RESEARCH