Getting back on the bull: now that the financial markets have begun to rally, here are some approaches that will pump up your portfolio for 2004.THIS YEAR HAS PROVIDED A LOT OF ENCOURAGEMENT FOR investors. A bull market hoofed its way through all the major stock indexes, boosting the Standard & Poor's 500 and the Dow Industrials some 12% or more by the end of August, and treating Nasdaq investors to a gain of more than 30%. The good news aside, investors stall stall, small division of a larger space, sometimes partly partitioned. The term is used for a booth for display and selling at an exhibition, for a compartment in a stable or kennel, or, in England, for the forward seats in a theater orchestra. have reason to feel apprehensive. They remember the sheer ferocity of the bear market that ended earlier this year--it lasted about 31 months and ripped RiPPED are an alternative rock band from Burlington, Ontario, Canada on Sextant Records/EMI Distribution. The band formed in 1994, and were originally called "Ripped Emotions". 49% out of the S&P 500 alone, making it the second longest and most volatile bear market we've seen since World War II. At the three-year anniversary of the end of the prior bull market (March 2000), S&P investors had suffered through a 16% compound decline each year. Now, as we approach the end of 2003, there are mixed signals surrounding sur·round tr.v. sur·round·ed, sur·round·ing, sur·rounds 1. To extend on all sides of simultaneously; encircle. 2. To enclose or confine on all sides so as to bar escape or outside communication. n. both the U.S. economy and the equities markets. Because of these mixed signals, BLACK ENTERPRISE decided to pick the minds of market observers and money managers alike, looking for Looking for In the context of general equities, this describing a buy interest in which a dealer is asked to offer stock, often involving a capital commitment. Antithesis of in touch with. clues as to what might lie ahead. Using the guidance of these investment professionals, we sifted through the stock and mutual fund markets with a series of screens. Our goal was to find investment opportunities--stocks and funds alike--that would encourage those who may have suspended sus·pend v. sus·pend·ed, sus·pend·ing, sus·pends v.tr. 1. To bar for a period from a privilege, office, or position, usually as a punishment: suspend a student from school. their investing to get off the sidelines Sidelines Hypothetical position referring to noninvolvement in a stock; merely watching. and back into the financial markets. A BULL WITH LEGS? A bull market needs at least three legs to stand on: (1) company shares that have climbed for extended periods due to rising profits, or what Wall Street calls earnings; (2) big stock market gains that occur when investors don't get lured away by sure returns from the bond market or other fixed income holdings; and (3) reasonably valued (or even cheap) stocks, compared to historical averages, that give the market a greater chance to climb. Over the past few years, a recession has hampered corporate profits. However, indications are that the U.S. economy is starting to rise from its slumber. thanks to aggressive efforts by the Federal Reserve to stimulate business activity. This past August, the Conference Board reported that its Index of Leading Economic Indicators index of leading economic indicators An index that is compiled by the Conference Board, a private-sector consulting firm. The index is designed to indicate the future direction of economic activity. , which measures where the nation's economy is headed in the next three to six months, rose for the fourth month in a row, reaching their most favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. levels since the recession started two years ago. "We believe that a towing economy causes earnings to rise, and [there are] signs [that] the massive fiscal and monetary stimulus stimulus /stim·u·lus/ (stim´u-lus) pl. stim´uli [L.] any agent, act, or influence which produces functional or trophic reaction in a receptor or an irritable tissue. will trigger economic growth and consumer spending Consumer demand or consumption is also known as personal consumption expenditure. It is the largest part of aggregate demand or effective demand at the macroeconomic level. as well," says Sam Stovall, chief strategist strat·e·gist n. One who is skilled in strategy. Noun 1. strategist - an expert in strategy (especially in warfare) strategian market strategist - someone skilled in planning marketing campaigns for Standard & Poor's. In turn, a strong economy should trigger a 17% year over year increase in operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before for the S&P 500 by the end of 2003 and a 13% increase by the end of 2004, says Stovall. Also, recent interest rates have given stock market investors reason to be cautiously confident. Low interest rates have spurred companies to borrow and expand, which should help pull profits out of their nut. When rates are low, as they have been this year, there is little incentive for big institutional investors Institutional Investor A non-bank person or organization that trades securities in large enough share quantities or dollar amounts that they qualify for preferential treatment and lower commissions. to push stocks aside and opt for Treasury or corporate bonds, which provide sure and steady interest income over time. In fact, the 10-year U.S. Treasury U.S. Treasury Created in 1798, the United States Department of the Treasury is the government (Cabinet) department responsible for issuing all Treasury bonds, notes and bills. Some of the government branches operating under the U.S. Treasury umbrella include the IRS, U.S. note. the benchmark bond Benchmark Bond A bond that provides a standard against which the performance of other bonds can be measured. Government bonds are almost always used as benchmark bonds. Also referred to as "benchmark issue" or "bellwether issue". experts use to chart the market, offered a mere 3.1% interest as of June 2003--a 45-year low. Late this past summer, money market accounts, often a convenient short-term haven for cash, offered very little to arouse investors: They averaged only 1%. The S&P 500 averaged about 1.75% interest. Chances are the big money in the market probably won't entirely abandon stocks any time soon. A SPOONFUL OF CAUTION The outlook for the market would be extremely bright if not for a few dark clouds dark cloud See absorption nebula. . Perhaps the biggest worry is interest rates. Recently, there have been stirrings in the bond market indicating that rock-bottom rates may soon rise. Higher rates mean that the cost of borrowing money for business expansion will rise, too, which could stall a recovery. According to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Isaac H. Green, president and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of Durham, North Carolina-based money management firm Piedmont Piedmont, region, Italy Piedmont (pēd`mŏnt), Ital. Piemonte, region (1991 pop. 4,302,565), 9,807 sq mi (25,400 sq km), NW Italy, bordering on France in the west and on Switzerland in the north. Investment Advisors Investment Advisor 1. A person making investment recommendations in return for a flat fee or percentage of assets managed, known as a commission. 2. For mutual fund companies, it is the individual who has the day-to-day responsibility of investing and monitoring the cash and , higher rates could also make equity valuations less attractive, which could cause the stock market to correct: "I foresee fore·see tr.v. fore·saw , fore·seen , fore·see·ing, fore·sees To see or know beforehand: foresaw the rapid increase in unemployment. a high-risk period for short-term rates until the end of 2003." Another concern is the market's overall value. Morningstar showed that, if measured by the preceding 12 months worth of profits, company shares comprising the S&P 500 were priced 22 times their reported earnings this past September. Historically, the market fetches no more than an average 14 times its earnings, indicating possible overvaluations. Green says a number of mitigating mit·i·gate v. mit·i·gat·ed, mit·i·gat·ing, mit·i·gates v.tr. To moderate (a quality or condition) in force or intensity; alleviate. See Synonyms at relieve. v.intr. To become milder. factors could well come to the market's rescue, even if a correction does take place. He says the Fed will likely reinforce its commitment to keep inflation low, and "tradition shows that years [in which] presidential elections are held tend to be the most bullish Bullish Word used to describe an investor's attitude. Bullish refers to an optimistic outlook, while bearish means a pessimistic outlook. bullish ." Green adds, "Indications are [that] the economy is poised to help us follow that pattern." LESSONS FROM THE BEAR The truth is, as humbling hum·ble adj. hum·bler, hum·blest 1. Marked by meekness or modesty in behavior, attitude, or spirit; not arrogant or prideful. 2. as they can be for investors, bear markets are great teachers. And if there's a lesson to be learned from the past three years, it is this: Diversifying your assets into a variety of investments can help cushion Cushion In the context of project financing, the extra amount of net cash flow remaining after expected debt service. cushion See call protection. your port folio (1) Text management software for the professional reference publishing market from Fast Search & Transfer, Oslo, Norway and Boston, MA (www.fastsearch.com). Known as FAST Folio since its acquisition in 2004 from NextPage, Inc. against sudden shocks. "If you step back and look over the market, there really aren't any slam-dunk opportunities out there right now," says Kunal Kapoor
Kunal Kapoor (Hindi:कुणाल कपूर, born 18 October 1975 in New Delhi, India) is an Indian actor. , an associate director of fund analysis at Morningstar, "The point, though, isn't to chase hot trends; it's to stay diversified diversified (di·verˑ·s to minimize risk One sure way to broaden your portfolio is to look overseas or to venture into small- a mid-size companies. These categories provide a good counterbalance to large company shares and mutual funds, often holding their own or posting solid gains when the S&P 500 runs into trouble. "International stocks might be some of the best performing shares in the next few years," says Lou Holland, CEO of Holland Capital Management in Chicago, "as could financial services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. , healthcare, and technology stocks, Small- and mid-cap stocks also do well whenever we exit a bear market." To put the advice of the experts to good use, we turned to Morningstar, the Chicago mutual fund monitoring company, to generate a list of mutual fund opportunities. First, we sought to provide a list of six core holdings with mutual funds that would provide investors a good starting point Noun 1. starting point - earliest limiting point terminus a quo commencement, get-go, offset, outset, showtime, starting time, beginning, start, kickoff, first - the time at which something is supposed to begin; "they got an early start"; "she knew from the in light of the current market. Using Morningstar's Principia prin·cip·i·um n. pl. prin·cip·i·a A principle, especially a basic one. [Latin pr  ncipium; see principle.] software, we hunted for funds investing in rock-solid, large
cap companies--corporations that deliver steady performance no matter
what the economic environment.Our screen honed in on portfolios run by the same managers for five years or more (as a measure of stability and experience) through the roaring ROARING. A disease among horses occasioned by the circumstance of the neck of the windpipe being too narrow for accelerated respiration; the disorder is frequently produced by sore throat or other topical inflammation. 2. bull market of the 1990's, as well as the vicious bear we have just exited. We looked for outstanding t,rack records to boot, limiting our sights to funds whose average annual total returns for the last five and 10 years ranked in the top 20% of their Morningstar category. Finally, we narrowed the field to two funds each from three Morningstar investment styles: large-cap growth funds, which invest in companies that are booming; large-cap value rituals, which invest in companies that are underappreciated or worthy of notice; and large-cap blend hinds Hinds may refer to: People with the surname Hinds:
Our second group of funds group of funds See family of funds. focused on diversifiers: portfolios investing in overseas stocks and shares of small and mid-size companies. Again, we put Morningstar's database through the same track of hurdles, including management tenure and long term track records. STOCK SCREENS Next, we tackled the long list of individual stocks with two screens that were run on the Zacks Investment site (www.zacks.com), a Chicago stock market and brokerage data firm. For criteria, we revisited the same screens we used In select stock picks in our January 2002 issue ("22 Stocks for 2002"). Only this time we added a few twists. As in early 2002, we sought out large companies with stock market values of $2 billion or more. We essentially wanted to play it safe: The larger a company, the less likely its stock will be shaken
Shaken (車剣, also known as kurumaken) are a type of Shuriken in a turbulent market. We also looked to see if company officials liked their own businesses, limiting our picks In companies where inside management had either made substantial stock purchases in the last quarter or held their stakes intact. And we looked to snare snare (snar) a wire loop for removing polyps and tumors by encircling them at the base and closing the loop. snare n. companies already profiting from a potential economic turnaround Turnaround A situation where a company that has had poor performance for an extended period of time experiences a positive reversal. Notes: A speculator may profit from a turnaround if he or she accurately anticipates the improvement of a poorly performing company. . To capture stocks that are showing sparks, we checked for earnings surprises--instances where quarterly company profit reports may have exceeded Wall Street's expectations. From there, our two screens took divergent di·ver·gent adj. 1. Drawing apart from a common point; diverging. 2. Departing from convention. 3. Differing from another: a divergent opinion. 4. paths. Our screen of growth stocks looked for companies thai had yet to reflect the full value of any business upswing Upswing An upward turn in a security's price after a period of falling prices. , shares whose price-to-earnings growth (PEG peg 1. To fix the price of a new security issue during the issuance period through buying and selling it in the open market in order to ensure that the price in the secondary market will not fall below the offering price. ) ratio was 1.5 or less. A PEG is the market's way of measuring a stock's price per share against its earnings per share growth rate. Observers feel that a stock with good business prospects tends to be a bit expensive once its PEG hovers near 2, so we aimed considerably lower than that mark. Finally, we targeted companies with long-term average annual earnings growth rates Growth Rates The compounded annualized rate of growth of a company's revenues, earnings, dividends, or other figures. Notes: Remember, historically high growth rates don't always mean a high rate of growth looking into the future. of 8% or more. Our screen of value stocks Value stocks Stocks with low price/book ratios or price/earnings ratios. Historically, value stocks have enjoyed higher average returns than growth stocks (stocks with high price/book or P/E ratios) in a variety of countries. took a different slant. We angled for stocks with substantial dividend yield. Dividends provide a way to harvest income from shares whether a company's stock appreciates in value or not. It's a potential cushion if the economy continues to stall. The stocks and mutual funds we targeted have the potential for significant gains over the next 12 months. Remember to diversify diversify To acquire a variety of assets that do not tend to change in value at the same time. To diversify a securities portfolio is to purchase different types of securities in different companies in unrelated industries. your holdings, and, hopefully, 2004 will bring you many happy returns.
Stocks To Jump On Now And Beat The Crowd
Market Cap. Recent
Company (Ticker) Industry-Sector (Millions) Price
GROWTH
Commerce BCP-NJ (NYSE: CBH) Regional Bank $3,036 $43.25
Convergys (NYSE: CVG) Data Processing- 2,584 18.10
Outsourcing
Goldman Sachs (NYSE: GS) Investment Banking 43,011 90.73
JetBlue (NASDAQ: JBLU) Airline 3,893 58.14
Lowe's Cos. (NYSE: LOW) Home Improvement 40,312 51.45
Retailer
VALUE
Brunswick Corp. (NYSE: BC) Boat & Engine 2,474 27.33
Maker
Public Service Enterprise
Grp (NYSE: PEG) Utility 9,596 42.39
Sara Lee (NYSE: SLE) Food 15,069 19.39
J.M. Smucker (NYSE: SJM) Food 2,052 41.08
RJR Reynolds (NYSE: RJB) Tobacco 2,851 33.81
Price
Change 52 Wk. 52 Wk. Long-Term
Company (Ticker) YTD High Low Growth
GROWTH
Commerce BCP-NJ (NYSE: CBH) 0.00% $47.23 $36.31 19%
Convergys (NYSE: CVG) 19.00 19.15 11.35 13
Goldman Sachs (NYSE: GS) -32.36 91.79 59.28 14
JetBlue (NASDAQ: JBLU) 115.00 59.62 20.10 31
Lowe's Cos. (NYSE: LOW) 37.00 55.88 34.00 19
VALUE
Brunswick Corp. (NYSE: BC) 38 28.30 17.50 13
Public Service Enterprise
Grp (NYSE: PEG) 32 44.40 21.76 4
Sara Lee (NYSE: SLE) -14 23.75 16.50 8
J.M. Smucker (NYSE: SJM) 3 41.81 32.27 9
RJR Reynolds (NYSE: RJB) -20 53.09 28.04 7
Avg. EPS Div.
Company (Ticker) PEG Surprise * Yield
GROWTH
Commerce BCP-NJ (NYSE: CBH) 0.92 2.50% 1.5%
Convergys (NYSE: CVG) 1.60 1.75 0.0
Goldman Sachs (NYSE: GS) 1.28 13.25 ([double dagger]) 1.1
JetBlue (NASDAQ: JBLU) 1.43 16.50 0.0
Lowe's Cos. (NYSE: LOW) 1.19 8.50 ([dagger]) 0.2
VALUE
Brunswick Corp. (NYSE: BC) 1.67 6.75 1.8
Public Service Enterprise
Grp (NYSE: PEG) 2.75 11.00 5.1
Sara Lee (NYSE: SLE) 1.56 -0.50 3.2
J.M. Smucker (NYSE: SJM) 1.96 7.50 ([dagger]) 2.2
RJR Reynolds (NYSE: RJB) 2.02 5.00 11.2
SOURCE: ZACKS INVESTMENT RESEARCH, AS OF SEPTEMBER 12, 2003. * FROM
DECEMBER 2002-SEPTEMBER 2003; ([dagger]) FROM JANUARY 2003-OCTOBER
2003; ([double dagger]) FROM FEBRUARY 2003-NOVEMBER 2003
Why You Should Pick These Stocks
Commerce BCP-NJ (NYSE: CBH) With a long-term record of lifting
profits, the Mid-Atlantic bank has used
expansion into the New York area to boost
deposit and earnings growth.
Convergys (NYSE: CVG) A leading provider of billing services
for the mobile phone industry, Convergys
is looking toward revenue growth in the
coming year.
Goldman Sachs (NYSE: GS) A stock market rebound could provide a
strong lift to one of Wall Sheet's
leading brokerage firms.
JetBlue (NASDAQ: JBLU) Rapidly expanding JetBlue is turning
profits in a dragging industry. Market
share gains and new routes should keep
profits soaring.
Lowe's Cos. (NYSE: LOW) Home improvement supplies retailer Lowe's
is giving Home Depot strong competition
by pushing into the nation's major
markets.
Brunswick Corp. (NYSE: BC) A boating equipment and engine maker,
Brunswick stands to benefit from a surge
in consumer spending if the economy picks
up.
Public Service Enterprise A steady New Jersey utility, PSE&G boasts
Group Inc. (NYSE: PEG) a 5% increase, despite a payout that's
below industry peers.
Sara Lee (NYSE: SLE) A maker of baked goods and a variety of
consumer products, Sara Lee is
inexpensive and sure to generate strong
cash flow.
J.M. Smucker (NYSE: SJM) Smucker hopes the addition of Jif and
Crisco to its roster of brands will widen
margins and boost profits.
RJR Reynolds (NYSE: RJR) Far from a popular pick, the maker of
Camel, Winston, and Salem sports a
whopping dividend yield at a time court
might ease up a bit on big tobacco.
Funds That Are Too Good To Pass Up
Avg. Annual Avg. Annual
10-Year 5-Year
Company (Ticker) Total Return * Total Return
B.E. CORE FUNDS
LARGE-CAP VALUE FUNDS
Dodge & Cox Stock (DODGX) 14.11 12.40
Van Kampen Comstock (ACSTX) 12.23 7.58
LARGE-CAP GROWTH FUNDS
Smith Barney Aggressive Growth
(SHRAX) 15.42 16.59
American Funds Growth Fund of
America (AGTHX) 12.80 10.37
LARGE-CAP BLEND FUNDS
Mairs & Power Growth (MPGFX) 16.21 12.28
Thompson Plumb Growth (THPGX) 15.38 12.97
B.E. DIVERSIFIER FUNDS
FOREIGN STOCK FUNDS
Tweedy, Browne Global Value
(TBGVX) 10.42 8.61
William Blair International
Growth N (WBIGX) 9.39 13.07
Oakmark International (OAKIX) 8.12 12.55
MID-CAP FUNDS
CALAMOS Growth (CVGRX) 19.92 25.02
FMI Common Stock (FMIMX) 12.23 13.81
Lord Abbett Mid-Cap Value (LAVLX) 13.17 14.74
SMALL-CAP FUNDS
Value Line Emerging Opportunities
(VLEOX) 13.35 20.81
Royce Micro-Cap Investors (RYOTX) 13.30 17.50
Heartland Value (HRTVX) 14.52 18.21
Avg. Annual
3-Year Morningstar
Company (Ticker) Total Return Rating
B.E. CORE FUNDS
LARGE-CAP VALUE FUNDS
Dodge & Cox Stock (DODGX) 8.24 5 star
Van Kampen Comstock (ACSTX) 2.72 4 star
LARGE-CAP GROWTH FUNDS
Smith Barney Aggressive Growth
(SHRAX) -8.98 5 star
American Funds Growth Fund of
America (AGTHX) -9.43 5 star
LARGE-CAP BLEND FUNDS
Mairs & Power Growth (MPGFX) 9.04 5 star
Thompson Plumb Growth (THPGX) 8.88 5 star
B.E. DIVERSIFIER FUNDS
FOREIGN STOCK FUNDS
Tweedy, Browne Global Value
(TBGVX) -0.81 5 star
William Blair International
Growth N (WBIGX) -5.62 5 star
Oakmark International (OAKIX) 4.37 5 star
MID-CAP FUNDS
CALAMOS Growth (CVGRX) -3.68 5 star
FMI Common Stock (FMIMX) 10.70 5 star
Lord Abbett Mid-Cap Value (LAVLX) 8.47 4 star
SMALL-CAP FUNDS
Value Line Emerging Opportunities
(VLEOX) -0.48 4 star
Royce Micro-Cap Investors (RYOTX) 11.43 4 star
Heartland Value (HRTVX) 19.08 4 star
Minimum Initial
Company (Ticker) Phone Investment/IRA/AIP
B.E. CORE FUNDS
LARGE-CAP VALUE FUNDS
Dodge & Cox Stock (DODGX) 800-621-3979 $2,500/$1,000/$2,500
Van Kampen Comstock (ACSTX) 800-421-5666 NA/NA/$25
LARGE-CAP GROWTH FUNDS
Smith Barney Aggressive Growth
(SHRAX) 800-451-2010 $1,000/$250/$1,000
American Funds Growth Fund of
America (AGTHX) 800-421-4120 $250/$250/$50
LARGE-CAP BLEND FUNDS
Mairs & Power Growth (MPGFX) 800-304-7404 $2,500/$1,000/$2,500
Thompson Plumb Growth (THPGX) 800-999-0887 $2,500/$2,000/$1,000
B.E. DIVERSIFIER FUNDS
FOREIGN STOCK FUNDS
Tweedy, Browne Global Value
(TBGVX) 800-432-4789 $2,500/$500/$2,500
William Blair International
Growth N (WBIGX) 800-742-7272 $5,000/$3,000/$5,000
Oakmark International (OAKIX) 800-625-6275 $1,000/$1,000/$500
MID-CAP FUNDS
CALAMOS Growth (CVGRX) 800-823-7386 $1,000/$1,000/NA
FMI Common Stock (FMIMX) 800-811-5311 $1,000/$1,000/$1,000
Lord Abbett Mid-Cap Value (LAVLX) 800-201-6984 $1,000/$250/$250
SMALL-CAP FUNDS
Value Line Emerging Opportunities
(VLEOX) 800-223-0818 $1,000/$1,000/$1,000
Royce Micro-Cap Investors (RYOTX) 800-221-4268 $2,000/$500/$500
Heartland Value (HRTVX) 800-432-7856 $5,000/$500/$1,000
SOURCE: MORNINGSTAR, AS OF SEPTEMBER 15, 2003. * AS OF AUGUST 31, 2003
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