Going for growth: SBK-Brooks Investment Corp. CEO says sector selection is key.

For Eric L. Small, president and CEO of Cleveland-based SBK- Brooks Investment Corp., selecting the best investment opportunities during the current U.S. domestic market means instructing his research analysts to watch for positive industry trends and monitor each company's future earnings potential. "I agree with most economists that we are in an economic recovery, but some industries are not faring as well as others," says Small.

SBK-Brooks, which provides equity brokerage and research services to corporate pension funds and institutional money managers, is forecasting growth in sectors like commodities, metals, steel, and oil. But he says sectors such as technology will lag behind, mostly because of concerns about inflated company valuations and a continued lack of corporate spending.

Small says the research arm of his business concentrates on identifying companies that distinguish themselves from their competitors. "The stocks we select are growth-oriented and have above-average long-term growth and earnings," he says. "We look for earnings growth and at the relative strengh of the industry."

Based on those criteria, Small selected five stocks with significant earnings strength exclusively for BLACK ENTERPRISE. Aetna Inc. (NYSE: AET), the healthcare benefits, group insurance, and retirement benefits provider had revenues rise from $18 billion in 2003 to $19.9 billion in 2004. "As the number of older Americans increases, Aetna will continue to expand its business," says Small. Aetna has also effectively cut administrative and overhead costs to help boost its net income to $2.2 billion in 2004, compared with $933.8 million for 2003.

Because of robust growth in the oil sector, Small picked Valero Energy Corp. (NYSE: VLO), which refines and markets premium, environmentally friendly products, including reformulated gasoline, low-sulfur diesel fuel, and oxygenated fuel. He notes that the company's net income almost tripled last year, increasing from $621.5 million in 2003 to $1.8 billion in 2004. "This company's stock is well positioned to take advantage of the fact that there's too little refining capacity for current demand," says Small.

Small thinks that if the economy continues to recover and jobs continue to rise, more disposable income will be spent on items produced by companies such as Coach Inc. (NYSE: COH), which designs, manufactures, and markets leather goods, accessories, and apparel. Coach experienced a 46% increase in net income, from $138 million in 2003 to $202 million in 2004 that was fueled mainly by a 37% increase in sales over the six-month period ending Jan. 1, 2005.

While his firm is generally cool about the technology industry, Small likes Apple Computer Inc. (NASDAQ: AAPL), which designs, manufactures, and markets personal computers and related software, peripherals, and communications solutions. Apple posted a 2004 net income of $276 million on $8.28 billion in revenues compared with a 2003 net income of $69 million on $6.21 billion in revenues. "This company is experiencing a tremendous comeback, largely due to an increase in sales of the iPod and Macintosh," says Small.

Small also recommends Cognizant Technology Solutions Corp. (NASDAQ: CTSH), a provider of IT design, development, integration, and maintenance services. The firm experienced 59% earnings growth from 2003 to 2004, causing its net income to grow from $57.4 million to $100.2 million. "This company's growth reflects higher income not only from existing customers but from new clients," Small observes. "By providing on-site technical account management teams to implement solutions and fix problems, they have a value-added component to their business that helps them stay competitive."

                                    12- to 18-        P/E on
Company                               Month          Projected
Exchange: Symbol        Price *    Price Target    2005 Earnings

Aetna Inc.              $153.93      $195.00           17.00
(NYSE: AET)
Valero Energy Corp.      $72.80       $90.00           13.50
(NYSE: VLO)
Coach Inc.               $59.42       $75.00           28.00
(NYSE:COH)
Cognizant Technology     $48.20       $65.00           37.10
Solutions Corp.
(NASDAQ: CTSH)
Apple Computer Inc.      $42.35       $65.00           41.00
(NASDAQ: AAPL)

                        Est. 5-Yr.
Company                 Annual EPS
Exchange: Symbol        Growth Rate    Why Stock Will Outperform

Aetna Inc.                15.00%       There will be greater demand for
(NYSE: AET)                            Aetna's services as America's
                                       elderly population increases.
Valero Energy Corp.        7.10%       Valero is poised to benefit
(NYSE: VLO)                            because the demand for fuel-
                                       refining services surpasses the
                                       supply.
Coach Inc.                20.00%       Coach will benefit from
(NYSE:COH)                             increased consumer spending as
                                       the economy recovers.
Cognizant Technology      33.00%       Cognizant's on-site technical
Solutions Corp.                        account management teams help it
(NASDAQ: CTSH)                         stay competitive.
Apple Computer Inc.       21.50%       Sales of products such as the
(NASDAQ: AAPL)                         iPod will continue to increase
                                       Apple's revenues.
* AS OF MARCH 7, 2005