IN THIS CORNER ...

As the volatile stock market climbs to new highs, investors continue to right for the best returns. Our investment roundtable tries to pick the winners as the battle between growth and value rages.

WITH RISING INTEREST RATES AND INFLATION FEARS, IT'S NOT EASY TO MAKE THE right investment decisions these days. Should you bulk up your assets with pricey growth stocks or keep your portfolio in fighting trim with cheap value equities that may not pay off for months--or years? Whether you're prepared to climb in the investment ring and fight for the best returns depends, of course, on your pocketbook tolerance level and stamina. To help you make it through the next rounds, we have assembled a group of experts--some in the growth camp and others in value--to stand in your corner.

Members of our semiannual roundtable included Bill Thomason, formerly of Parnassus Investments in San Francisco, who now has his own firm Thomason Capital Management, and currently manages the SRI Equity Trust Fund for Retirement Plans (one-year performance to July 31: 57.54%); Kim Lew, a technology-focused portfolio strategist for the Ford Foundation (fund performance, September 1998 to July 1999: 76.4%); Walt Pearson, an institutional money manager for New York-based Alliance Capital (one-year performance to July 31: 22.03%); Craig Simmons, chief investment strategist and head of fixed income for Ashland Global Securities L.L.C., an African American-owned broker-dealer; and Dawn Alston Paige, manager of the Loomis Sayles Midcap Value Fund, which invests in companies with a market cap of between $1 billion and $5 billion. (Due to the overall poor performance of value stocks, the one-year fund performance to July 31 was only 5.82%.)

The following are the session's highlights, which we hope will help you make the best offensive and defensive moves in the market. Ding!

BLACK ENTERPRISE: There has been a great deal of volatility in stocks, with growth and value shares essentially switching market leadership. Will we continue to see this trend of seesawing over the next six months to a year and why?

DAWN ALSTON PAIGE: I don't think, going forward, that people are going to buy growth stocks with the same amount of enthusiasm as they have in the past. April and May marked the biggest value months, back-to-back. I think you are going to see values start to resume leadership once the inflation scare is pretty much behind us.

WALT PEARSON: Well, the top 20 stocks, in the Standard & Poor's 500, are selling at 47 times 1999 earnings. The 20th stock is actually AOL, which has obviously got a very high multiple [at] 40 times '99 earnings. So, obviously, valuation is at the very high end. It has been there for quite some time, so that is something we're a little nervous about. As large-cap growth managers, we look for companies with explosive earnings growth, good franchises, earnings numbers going up, which is extremely important, and, hopefully, margins going up. But we're going to watch the price. The small- to mid-cap companies are where you see all the insider buying now. So even though we're a large-cap growth manager, we're trying to grab some of these mid-cap names and catch them early and ride the cycle as they explode.

KIM LEW: We're large-cap growth also. Lately, we have started to shift somewhat out of growth and into more value. We've changed our benchmark as a result. We used to be 50% S&P 500 and 50% [Standard & Poor's Barra Growth Index], and now we're going to be just S&P 500. When I first started, our benchmark for technology was like 13.9% of the S&P and [now] it's like 23% to 24%.

BILL THOMASON: Well, I think Dawn and I are in the nonsexy part of the business.

PAIGE: It's gonna get a whole lot sexier.

THOMASON: I mean, we have been in that nonsexy part of the business for two years, and I always said that I found some of the best value. I mean, it's hard to say that value just wasn't there [in] a lot of these good names that were just beaten down. One of the things that is driving the technology industry is PC sales and the Internet; but a lot of people [in Silicon Valley] are just so optimistic now about where we're going with technology. That's why I'm looking at some of the names that I've held for a long time, like Applied Materials. I bought Applied Materials at 22 when it was a value. It's at 73 now. A lot of these names that we've held are starting to come back now.

PAIGE: Value, at this point, has been misconstrued to mean some beaten-down, crappy company. But, in this environment, since small-cap companies have suffered so greatly at the expense of or because of the flow of funds into large cap, you have a lot of good companies out there with explosive growth characteristics. We've got a lot of good companies in our portfolio that are by no means fallen angels or dogs. They're just strong names that no one has had an interest in for the last 18 months, and it has been hell. Then, April and May, we saw that it felt like things were finally turning around.

PEARSON: But, you know, the large-cap stocks have significantly outperformed small caps over the last several years and there has basically been one reason behind that: earnings. The large-cap companies are the ones who have been putting up earnings and the small caps haven't. That's why people have been buying the names like Cisco and the Microsofts of the world.

B.E.: So what is your earnings outlook for large caps in the months ahead?

PEARSON: The earnings numbers [for the S&P 500] are going up. Six months ago, nine months ago, we were thinking that the S&P 500 might grow 7% to 8%. Now we're talking double digits, 12% to 13%. If you look at what has been behind the [success of] the market the last few months, it has been a lot of large-cap companies reporting positive earning surprises.

B.E.: How do you define the new economy and identify the equity and fixed-income investment opportunities in this environment?

CRAIG SIMMONS: I have been in the new era camp for a long time, believing that productivity would always surprise us on the upside, backed up by lower interest rates than we expect. [This has brought about] the surprises in earnings numbers. The Fed's job is to control the money supply, to keep things from getting out of control, and I think people are looking at the value era believing that we're about to move into an inflation era. I just think that's all hogwash. It's not something that is going to happen for at least seven years. The Fed is really in front of a curve. [They're] thinking about how the markets are going to react. The markets have become more and more sort of what I call self-regulating.

PEARSON: Craig, you brought up just the point I want to touch on' productivity. Namely, I want to talk about the Internet. This has been incredible. Global e-commerce totaled nearly $50 billion in 1998. It's expected to surpass $1 trillion over the next couple of years. IBM purchased $12 billion in goods and services over the Web in 1998, saving $240 million in the process. I think all of us have probably, over the last several years, underestimated just how powerful productivity has been, and there is no question that the United States is at the forefront of the world when it comes to technology and productivity.

LEW: It's also important to keep in mind the fact that we haven't really yet begun to capitalize on things like the Internet because we're still doing business the old way. There is going to be a fundamental shift in the way business is done that will increase productivity even more.

B.E.: So, as an investor, do I look at the Internet as a pure play or do I look at those companies that are re-crafting their strategy to include the Internet?

LEW: It depends on how much of a risk taker you are.

PAIGE: As a value manager, the way that we try to tap into the new economy is to do a backdoor play. In this economy, everyone is going to use a credit card. We go with the transaction processors. Nova Corp. (NYSE: NIS) is a company that we recently purchased that is extremely cheap. Their core competence is basically acquiring merchant portfolios, integrating them and squeezing out incremental earnings from that. I also own [jewelry retailer] Zale Corp. (NYSE ZLC) Like a Zale, you've got to have certain products that are conducive to the Internet, you've got to be first and you've got to have a franchise behind you.

THOMASON: I'm in Silicon Valley. I equate what's happening now with the San Francisco Gold Bush of a hundred years ago. Only a few of those guys who dug for gold got real rich. The people that made the real money were the guys selling the picks and axes. I'm trying to find the guy that's selling the picks, buckets and the axes.

SIMMONS: I know what [the picks and axes] are: marketing and distribution. I think that is the be-all and end-all of the Internet. The companies that will be successful are the ones who can get the products out to the end users. That's probably why the Fords have developed mass distribution networks and, on top of that, created phenomenal marketing capabilities and advertising. My backdoor play is shipping companies [like] Fed Ex (NYSE: FDX)--any company that is going to help relieve the bottlenecks in distribution.

PEARSON: What we tell our client is that if you're going to invest in the Internet as a pure play, [buy] a Company that's going to make you money. So we want the AOLs, the Yahoo!s, the eBays and the Amazons. But you've got to buy a basket of them. We [are also] really big believers in a back doorway, and the back doorway has names like Cisco (Nasdaq: CSCO) and MCI WorldCom (Nasdaq: WCOM).

B.E.: Federal Reserve Chairman Alan Greenspan has voiced concern about an overheated economy stoking inflation. We have seen one interest rate hike this year. Will we see more?

SIMMONS: My take on interest rates will be that they will sort of hover around the 6% range, and only because you have an abundant supply of corporates. I don't see another rate hike this year.

PEARSON: We've had a current expansion now going on for 100 months. In another six months, it will be the longest expansion ever, period. We expect economic growth actually to moderate, over the next 12 to 18 months to go from a 4% kind of growth to a 3% kind of growth, which is what Alan Greenspan wants to see. So, there is no reason for him to tighten. There's just no evidence.

PAIGE: It does seem like the Fed is basically a little ahead of itself. If something out of the ordinary should happen, it seems like maybe the Fed will raise rates. It has been 100 months, and inflation has got to come sooner or later. The value people want rates to rise to bring those growth stocks down, but I see nothing on the horizon that would indicate that rates need to go up.

PEARSON: If interest rates go up, it's going to kill the high P/E stocks, some of the stocks that I like. Basically, P/Es are like bond yields. They tend to move in opposite directions from interest rates. So, if interest rates go up, you're going to have a correction. If we do, I would really encourage you to step in and buy some of these quality names, the good franchises and powerful stories that get hit 10% to 15% in a correction.

B.E.: How do you think the market is going to react to Y2K? Will it create buying or selling opportunities?

SIMMONS: I think you could see knee-jerk reactions. Companies are raising money early--just in case. I think there is going to be a lot of excess liquidity as a result. When you anticipate a crisis, generally it doesn't happen. That has been my experience, and I think most people's experience. [In the meantime], you can have serious runs on certain industries, companies or countries.

LEW: That would hit the financial side pretty hard.

PAIGE: Well, some of the opportunities that exist now in the market I think are in consumer staples. People will be hoarding food. Anybody who lived through the Depression is telling their grandchildren and children, buy food and take money out [of banks]. July [1999] to March 2000 will be the time frame.

PEARSON: I disagree. If you look at some of the staple companies, they don't have pricing power anymore. The volumes have been going down. Earnings have been coming down. Gillette (NYSE: G) has reported flat earnings for three years now. I think the opportunities, going forward, are in the financial area. Not only are the financial services exploding, but you're talking about companies growing 15%, 16%, 18% and selling 18 times [earnings], so that there are still reasonable, good growth companies with reasonable valuations. Also, I have a bias toward technology.

PAIGE: You've got a lot of consumer goods companies, small, or mid-cap type names in which the pricing power isn't necessarily there but they're in a cycle, and, at this point, they've been beaten down. They're cheap and you can get 12% to 20% earnings [growth], depending on the company. [Many of] these companies are extremely cheap, and if they do well from the fourth quarter [of 1999] into the first quarter of 2000, you can't beat that.

B.E.: What do you view as the best sector bets for investors over the next few months?

PAIGE: Going forward, we're looking at electrical equipment types of industries, basically. One name would be SCI Systems (NYSE: SCI), which is contracts, manufactures and outsourcing. I am also still pretty positive on retailing. I think the consumer market] is going to continue to be strong. Another area where value is to be found is in the financial sector. Among banks, I'm pretty heavy in the Southeastern banks, where population growth is good and business is pretty strong.

THOMASON: I think one of the best sectors of the market right now, from a value standpoint, is the enterprise software market because of this issue with Y2K. I think a good name I like in that sector is PeopleSoft (Nasdaq: PSFT). The stock price is off tremendously. It's down to, like, $16. This was a $55 stock not long ago. It has been down for a while, but I think that [it will come back]. On the flip side of that, I will look at quasi Internet companies. Another name that I really like is Borders Books (NYSE: BGP) because they are competing with Amazon.com. Amazon has 90% of the online book traffic and Borders is at about $14 [a share], but I think they've got good management. Another name I like is Mattel (NYSE: MAT), the toy company.

LEW: Like I said earlier, I focus on technology. I thought about which sectors within technology are the ones that I want to put the most emphasis on. I agree 100% with Dawn and her outsourcing theme. I agree 100% with enterprise software as a great market for 2000. I just think it has to be companies that have an Internet tie that are starting to focus on CRM (customer relationship management) software, things that allow them to speak to their customers and allow them to service their customers better. They've automated the back office. They're sort of moving toward the front office, so I like the enterprise software companies that are using the Internet, like Oracle (Nasdaq: ORCL), which I think is a great company for 2000.

SIMMONS: I think in terms of themes. One of the biggest themes we've talked about already is the Internet, and Fed Ex is my hands-down pick to take advantage of distribution. Then, I love retail because I think that the U.S. [economy] will continue to be strong. I like Saks (NYSE: SAKS) as a value retail play and Venator Corp. (NYSE: Z), which is the old Woolworth. I like the stock because they have the distribution system, they've got Foot Locker [athletic gear stores] and some buyout company is trying to make a play for them.

B.E.: Looking at the overall market, what are your predictions for the Dow, S&P and Nasdaq over the next six months?

PEARSON: If the economic scenario holds up, and I think it will, I think the Dow would be up 10% from [July 15, when the roundtable convened]. So we're looking at 11,100 or something close to that. I think the S&P will be up probably 10%. It's a little under 1,300 now, so throw 130 points on that. The Nasdaq, if the economic scenario holds up and these profits keep coming in with a lot of these tech companies, I think you'll see that up 12% to 15%.

SIMMONS: Nasdaq, up maybe 5%. The Dow, flat. S&P, flat.

PAIGE: This is a pure shot in the dark, but I would say that [the Dow] would probably, in the year, be at some euphoric 12,000 level. There is such a force of money waiting to go into the market that there is no such thing as a bear market anymore and, if there is, it's not going to last long because there is pent-up demand for the stock market. I don't think that we're going to suffer any major corrections.

THOMASON: I'll be the contrarian in the group. My opinion is that by the end of the year, we may see some dips in the market, maybe a 10% or 15% dip. I think by the first quarter, when people start finding out that the world really did not come to an end [because of Y2K], I think the market will come back and in a big way.

LEW: Well, I started to believe that if the Y2K thing does have an impact, then it's going to last through the first quarter. The market is going to be down for a little while. Maybe it goes down 10% to 15% and bounces around down there for a while. If Y2K happens, a lot of other stuff is going to happen, [such as higher ] interest rates. The market will come back in the latter half of 2000.

PAIGE: Well, you are definitely going to have to be a contrarian then. You're going to have to be able to hold your gut and buy.

B.E.: In this volatile market, what do you view as the best stock-picking strategy?

PEARSON: Just buy what you know: the old Peter Lynch philosophy, and he made a ton of money. A lot of folks work at a particular company. They know the company better than anybody else.

Alston Paige's Value Stock Picks

Company/Ticker                 52 Week       P/E        One-Year
                               High/Low                  Return

SCI Systems Inc.              59.37/20.75    24.91      61.17
(NYSE: SCI)

Allmerica Financial Corp.     75.25/38.37    14.26     -12.55
(NYSE: AFC)

Saks Inc.                     39.50/16.37    13.65     -29.69
(NYSE: SKS)

SCI Systems Inc.: The company designs and manufacturers electronic products. Alston Paige believes that the outsourcing strategy will continue to fuel the company's growth.

Allmerica Financial Corp.: Allmerica markets insurance and retirement savings products and services for individuals and institutions. With the aging baby boomer population, Alston Paige says it is the stock to hold.

Saks Inc.: The company owns some of the best franchises in retailing, including Saks Fifth Avenue, Proffitt's and Carson Pirie Scott. Alston Paige expects the company to continue to grow with the strong consumer market.

Source: Bloomberg; blackenterprise.com

Lew's 1999 Growth Stock Picks

Company/Ticker            52/Week        P/E     One-Year
                          High/Low                Return

EMC Corp                  67.46/20.84    62.98    112.59
(NYSE: EMC)

Nortel Networks Corp.     94.12/26.81    48.4      54.46
(NYSE: NT)

Oracle                    41.16/12.12    41.34    121.57
(Nasdaq. ORCL)

EMC Corp.: The company designs, manufacturers, markets and supports hardware and software products for the burgeoning enterprise storage market. In the post-Y2K environment, Lew expects the company to grow through the storage of e-mail.

Nortel Networks Cor.: What makes the telecom equipment manufacturer attractive to Lew is the company's strong European presence and its emphasis on wireless communications.

Oracle Corp.: Although the stock plunged last year, Oracle has made a roaring comeback. As companies automate front-office functions with the use of the Internet, Lew expects the enterprise information software maker to be the leader.

Source: Bloomberg; blackenterprise.com

Person's Growth Stock Picks

Company/Ticker                       52/Week       P/E   One-Year
                                    High/Low               Return

Tyco International Ltd.            104.50/40.25   35.72    60.91
(NYSE: TYC)

International Business             139.18/55.37   32.98    89.09
Machines Corp. (NYSE: IBM)

Cisco Systems                       69.25/20.56   83.25    79.85
(Nasdaq: CSCO)

Tyco International Ltd: This diversified manufacturing and service company is Pearson's No. 1 pick, as it does an outstanding job acquiring companies and cutting costs after these acquisitions. He says Tyco has and outstanding management team and should have positive earnings surprise.

International Business Machines Corp.: One of the bluest of the blue chips, the hardware and software maker continues to surge. Pearson says that earnings are accelarating because of the company's focus on sales, service, software and e-business and less on mainframe, reducing cyclicity.

Cisco Systems Inc.: Pearson chose this stock because of the company's accelerating top and bottom lines. Growth and earnings numbers are going up, and its router product is the backbond of the Internet. He says Cisco has one the of the best management teams in technology.

Source: Bloomberg; blackenterprise.com

Simmon's Equity and Fixed-Income Picks

Company/Ticker                       52/Week       P/E   One-Year
                                    High/Low               Return

FDX Corp.                        61.87/21.81     20.10     52.48
(NYSE: FDX)

Sylvan Learning Systems Inc.     34.62/17.12     24.55    -17.17
(Nasdaq: SLVN)

Venator Group Inc.               14.06/3.18     -70.83    -35.55
(NYSE: Z)

FDX Corp. Best known for its flagship subsidiary, Federal Express, the express shipping and trucking company, Simmons says the company represents a backdoor play on the Internet because good distribution is an important part of the Internet and Fed Ex has that capacity.

Sylvan Learning Systems Inc.: Simmons views education as a growth market and Sylvan as being firmly positioned to grow exponentially over the next decade. It represents the money manager's ultimate value pay.

Venator Corp.: After selling the old Woolworth Department Stores, the company has focused on such key franchises as Foot Locker and Champs Sports outlets. After taking a severe beating in the market over the past year, the stock is extremely cheap and, according to Simmons, poised to rise.

On the fixed-income side, Simmons tells investors to put their dollars in short-term bonds because of the jittery market. He favors two-year U.S. Treasury notes (for notes due June 2001, the coupon is 5.75%) and municipals bonds with maturities of no longer than five years.

Source: Bloomberg; blackenterprise.com

Thomason's 1999 Value Stock Picks

Company/Ticker                       52/Week       P/E   One-Year
                                    High/Low               Return

PeopleSoft Inc.                  39.87/11.50      36.49   -64.59
(Nasdaq: PSFT)

Borders Group Inc.               31.37/11.15      11.68   -58.33
(NYSE: BGP)

Mattel Inc.                      40.75/21.25      20.60   -44.32
(NYSE: MAT)

PeopleSoft Inc.: The company designs, develops and markets clients/server application software products. Although the stock's total return has been lackluster, Thomason believes that the company's solid management team and corporate strategy make it an undervalued gem. Because of Y2K issues, look for the turnaround to occur in the first quarter of 2000.

Borders Group Inc.: The concern operates book superstores throughout the nation under the Borders and Waldenbooks monikers. Thomason believes that the company can prove to be a strong online competitor to Amazon.com, which currently controls 90% of the market.

Mattel Inc.: The company has been expanding its product base beyond the Barbie franchise with moves such as the acquisition of the Learning Co. Thomason expects the stock to improve with the sales of the Learning Co., a franchise leader in educational software.

Source: Bloomberg; blackenterprise.com3