Winning With the Market.Our panel of experts shows you how to make money in good times and bad THESE DAYS, INVESTORS ARE 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. ANSWERS to some pretty heady questions, ranging from the macro to the micro. Is the economy headed for recession? Will stock market volatility increase? Where should I put my hard-earned dollars? It's understandable. The first quarter of 2001 has brought some dizzying and, oftentimes, contradictory events. Just check out a few: * In the first three weeks of this year, the tech-heavy Nasdaq composite index Nasdaq Composite Index An index that indicates price movements of securities in the over-the-counter market. It includes all domestic common stocks in the Nasdaq System (approximately 5,000 stocks) and is weighted according to the market value of each listed rose a phenomenal 15%, even though corporate earnings were flat or on the decline. The index's surprise comeback came on the heels of the technology bear market of 2000, when the Nasdaq plummeted 35%. Then, by mid-February, the Nasdaq lost all of the gains that it made the previous month. * In January, the Federal Reserve lowered interest rates twice--cutting short-term rates a full point, from 6.5% to 5.5%. Moreover, Fed Chairman Alan Greenspan Alan Greenspan Dr. Greenspan is Chairman of the Board of Governors of the Federal Reserve System. Dr. Greenspan also serves as Chairman of the Federal Open Market Committee (FOMC), the Fed's principal monetary policymaking body. , who repeatedly stated that the federal budget surplus should be used for the reduction of the national debt and not President George W. Bush's $1.6 trillion tax cut proposal, did an aboutface. Citing that the economy had entered a phase of "zero growth," he backed the plan that Dubya calls "recession insurance." * Consumer confidence dropped to its lowest level since the recession of the early '90s as thousands of workers received pink slips. To help you make savvy money moves, we assembled our roundtable of investment experts for our semiannual meeting. The participants included Steve Sanders Steve Sanders is a co-anchor of WGN News at Nine in Chicago. Sanders is a veteran broadcast journalist who began at WGN-TV in 1982 as a general assignment reporter. For nine years, Steve anchored the WGN News at Noon, consistently Chicago's top-rated noontime television newscast. , president of MDL MDL - (Originally "Muddle"). C. Reeve, Carl Hewitt and Gerald Sussman, Dynamic Modeling Group, MIT ca. 1971. Intended as a successor to Lisp, and a possible base for Planner-70. Basically LISP 1.5 with data types and arrays. Capital Management (No. 9 on the BE ASSET MANAGERS list) with $2.5 billion in assets currently under management, and portfolio manager of the $28 million MDL Large-Cap Growth Fund (MLGEX); Eugene Profit, portfolio manager of the Profit Value Fund (PVALX), which was given a five-star rating by Morningstar Inc., the mutual fund research company in Chicago; Dail St. Claire, first vice president of Amalgamated a·mal·ga·mate v. a·mal·ga·mat·ed, a·mal·ga·mat·ing, a·mal·ga·mates v.tr. 1. To combine into a unified or integrated whole; unite. See Synonyms at mix. 2. Bank and part of a team that manages the LongView Quantitative Fund, a large-cap core fund that employs quantitative models to create an optimal portfolio and beat the Standard & Poor's 500-stock index by roughly 150 basis points over a market cycle, net of fees; and Paul Viera, 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 EARNEST Partners (No. 8 on the BE ASSET MANAGERS list). The company presently has $2.5 billion in assets under management Assets Under Management (AUM) is a term used by financial services companies in the mutual fund and money management or investment management business to gauge how much money they are managing. and manages three asset classes, including a small-cap value portfolio that was up 38.5% last year. The following are excerpts from the meeting: BLACK ENTERPRISE: What's your outlook for the market? STEVE SANDERS: There has been a sentiment, shift from the third and fourth quarters of 2000 to the first quarter of this year. Basically, the Fed was in a tightening mode. They believed inflation was a potential problem. The economy began to slow in the third quarter and actually more like in the second quarter. That slowdown began to look more like a recession. At the same time, there was uncertainty about the presidential election and most Americans, particularly investors, don't like uncertainty. [Investors are acting the same way they] did in 1999 and 1998 and probably the beginning of 2000. People are playing on the fact that the Fed has already given us a surprise cut early on in the year. That was part of the problem that I had with the fourth quarter. The Fed cut was warranted back in December. When you look at the Nasdaq's bounce, technology stocks will generally perform well when the Fed is easing. That's good for their P/Es and balance sheets. So the psychology of the market says to buy techs [as well as] consumer cyclicals [like real estate and automobiles] while the Fed is cutting. EUGENE PROFIT: I think we didn't get a Bush bounce because we were focused on the election and the counting and recounting in Florida. A lot of managers weren't really going ahead and readjusting their portfolios. I know that we, to some extent, missed it, and thought that we'd do it after the bounce came and, since it never came, we got stuck and we ran out of time. [The Fed] came out with a surprise cut in January, and market psychologists say the market wants to go higher here. People are buying, almost without regard to fundamentals, again. B.E.: So where do you see the land mines in today's market? PROFIT: Well, you have a new administration. You don't know Don't know (DK, DKed) "Don't know the trade." A Street expression used whenever one party lacks knowledge of a trade or receives conflicting instructions from the other party. what impact [Bush's] policies are going to have on the economy. You're going to start seeing estimates move down on GDP GDP (guanosine diphosphate): see guanine. (gross domestic product), and they already are quite low. The sentiment is that the second half of the year is going to be better. That's not guaranteed. A lot of people are looking at the second half [as having] 12% growth in earnings. If you see that cut in half, then you will see stock prices depressed as a result. DAIL ST. CLAIRE: I personally think we will avoid a recession. Yes, the economy is slowing down and thank goodness, because we were at nosebleed nosebleed, nasal hemorrhage occurring as the result of local injury or disturbance. Most nosebleeds are not serious and occur when one of the small veins of the septum (the partition between the nostrils) ruptures. levels for a long time. It's a painful thing, but it's a good thing, ultimately, for the economy. I think that as long as we have a vigilant Fed, the economy will slow down and will be fine. In the long term, we just won't see these incredible double-digit returns [in the stock market]. PAUL VIERA: I don't think you can overemphasize o·ver·em·pha·size tr. & intr.v. o·ver·em·pha·sized, o·ver·em·pha·siz·ing, o·ver·em·pha·siz·es To place too much emphasis on or employ too much emphasis. the effects of psychology on the market in the short term, and I don't think you can overemphasize the importance of earnings on the market longer term. Just to dovetail dovetail (dov´tāl), n a widened or fanned-out portion of a prepared cavity, usually established deliberately to increase the retention and resistance form. last year into this year, I think what we saw last year was a great deal of psychology in the market that sort of became unglued un·glued adj. 1. Loosened or separated; unfastened. 2. Informal In confused distress; upset. Idiom: come unglued Informal To lose one's composure. , and that sets the base for what people are thinking now. Sentiment does matter in the short term. The second thing that happened is when people start to talk about investing, they only mean one thing: buying technology stocks. If you weren't buying technology stocks, you weren't investing. You were putting the money in that passbook account. That became the mentality, and a lot of that investing became Internet investing. [Internet companies] had poor business models, but they spent the money on advertising and holiday parties. They ran out of money, started to go out of business, and the stocks responded appropriately. They went down. B.E.: So if you invested in "dot-bombs," your portfolio exploded? VIERA: That's right. And it hurt the psychology of those people who invested in those stocks because their wallets were hurt. It hurt the psychology of the whole market because it caused everyone to look at valuations, not just with respect to the valuations of dotcoms, but of the Intels, the Worldcoms, and technology companies across-the-board. When the psychology kind of turned, it didn't work anymore because people started to bail out. The beneficiary of all those things had been technology. So last year, technology took the brunt of it as compared to a lot of other sectors that did terrifically last year. Utilities did great. Pharmaceuticals did wonderfully. Financials, by and large, did well. B.E.: We would like each of you to give us your forecast for interest rates, the Dow, Nasdaq, and S&P 500 over the next six to 12 months. PROFIT: In terms of rates, maybe 50 basis points over the next six [months], another 25 in six to 12 months, and then, in the next year, probably another 25 to 50. We probably would see through the next year the Nasdaq bounce another 15% to 18% up from here. You probably would see the S&P 500 and Dow in about the 7% up range. I think the drivers, probably in the Dow and S&P, are going to be very similar. I think Microsoft will be one of the drivers, to get down to the stock specific. SANDERS: Let's see Let's See was a Canadian television series broadcast on CBC Television between September 6, 1952 to July 4, 1953. The segment, which had a running time of 15 minutes, was a puppet show with a character named Uncle Chichimus (voice of John Conway), which presented each . I think Dow and S&P, you're looking 10% to 15%. I think the Nasdaq could see 15% to 20%. It's going to be very choppy chop·py 1 adj. chop·pi·er, chop·pi·est Having many small waves; rough: choppy seas. [From chop1. . It's going to run up, run back, [and] pull back to possibly 3,000 once or twice before the year is out, but we will have a very strong fourth quarter after a lot of the stimulus has been put in place. The interest rate cuts will be put in place by the time of the tax cut. This is going to be interesting: whether or not the tax cut is retroactive Having reference to things that happened in the past, prior to the occurrence of the act in question. A retroactive or retrospective law is one that takes away or impairs vested rights acquired under existing laws, creates new obligations, imposes new duties, or attaches a . If it's retroactive back to January 1 of this year, that's going to be a huge stimulus for the economy. I see the Fed maybe taking their foot off a little bit. I think stocks will have a fairly decent year, as they should, in a decreasing interest rate environment, barring some kind of international catastrophe. If you're asking what makes me nervous going forward, there could be problems with the European economy, the Japanese economy, or some type of Middle East skirmish that draws attention away from everything that is taking place. But, even in those environments, there are stocks that you can buy to make money. VIERA: I would say that all those indexes will have compounded [growth] at 15%. I would have to say interest rates are going to be lower. Order of magnitude A change in quantity or volume as measured by the decimal point. For example, from tens to hundreds is one order of magnitude. Tens to thousands is two orders of magnitude; tens to millions is three orders of magnitude, etc. , I would say 50 to 75 basis points. And that's primarily because the forward rate indicates that that is what the market expects it to be, 75 basis points. ST. CLAIRE: My personal belief is, in terms of the S&P and Dow, plus 10%. Certainly, in terms of the bond market, clearly interest rates are going lower and [by] how much? Anywhere from 75 to 100, but the reality is that there are factors that are going to drive when and how much. I think the key factor, frankly, is this tax rate cut that's on the horizon. I think Steve made a good point. B.E.: So what strategy should investors employ in today's market? What sectors should they take a look at? ST. CLAIRE: If there is anything we learned last year, it's diversification, diversification, diversification. Not just in stocks and bonds, but certainly in subsectors as [they pertain per·tain intr.v. per·tained, per·tain·ing, per·tains 1. To have reference; relate: evidence that pertains to the accident. 2. ] to the old economy and new economy. PROFIT: Actually, I think the so-called old economy stocks are going to be beneficiaries of some of the dotcom implosions because they are going to be able, especially as the economy picks up again, to put online their own Internet strategies, either to buy it or build it. They are going to get more efficient with respect to processes. For a company like Wal-Mart (NYSE NYSE See: New York Stock Exchange : WMT (Windows Media Technologies) See Windows Media. ), the Internet portion becomes a microcosm of their entire revenue mix. It is able to handle the dips and flows, and to let the Internet build out in its own processes at a natural pace. I think sectors, from a demographic standpoint, that are going to outperform will be telecom, technology, and, to some extent, 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. . SANDERS: If the economy sticks to the script, we've got declining interest: rates. That's the environment that we're in and we're probably going into that environment for at least the next 12 to 18 months. We're also in an environment where we are not only going to have a monetary stimulus, but also fiscal stimulus, with a tax cut. And it's going to be a huge tax cut. That's going to be good for consumers and the consumer's insatiable appetite to spend did not decline, even during the fourth quarter of last year. It slowed a little, but it didn't disappear. So you look at the macro- and microeconomics microeconomics Study of the economic behaviour of individual consumers, firms, and industries and the distribution of total production and income among them. It considers individuals both as suppliers of land, labour, and capital and as the ultimate consumers of the final of it all, without a doubt it's going to meet in the financial services arena, which would be good for some of the major banks and diversified financial The diversified financial services segment includes a range of consumer and commercially-oriented companies offering a wide variety of products and services, including various lending products (such as home equity loans and credit cards), insurance, and securities and investment services companies. It would also be good for technology companies. They are going to get some relief on the P/E P/E See: Price/earnings ratio side, but you're going to have to be very selective in the technology area. The bigger technology names will be the stronger places to be. Earnings will be extremely critical going forward. No longer will people just buy because it looks good. They are listening to the guidance from corporate management. That is leading people toward certain stocks. Then, we also like consumer cyclicals because of the script playing out. That is going to bode very well for some of the retail stocks and retail discounters. B.E.: Are there any sectors investors should avoid? SANDERS: The areas you probably want to stay away from are energy stocks and utilities right now, as well as some of the basic materials and capital goods Capital Goods Any goods used by an organization to produce other goods. Notes: Examples of capital goods include office buildings, equipment, and machinery. See also: Capital Expenditure, Disinvestment Capital goods . B.E.: Will this focus hold if the economy slides into a recession? VIERA: We ask the question, "Is there going to be a recession this year or not?" The real answer is--and I don't mean to be trite about it--so what if there is? It doesn't matter. If you are investing long term and you believe in capitalism, then the fact that we may be down for a quarter or two shouldn't cause you not to buy securities now because, in the long term, it will be a good thing to do. Secondly, we ask the question all the time of ourselves: "What are the sectors right now that you want to buy?" We want to buy stocks that are going to go up because longer term you just want to buy the companies that are positioned well for the longer term. B.E.: How should investors define a long-term strategy? VIERA: The [classic definition] is a market cycle, which is measured [from] peak-to-peak or trough-to-trough, which historically has been sort of three to five years. But, the real answer, up until this year, had been 18 years, 1982 to 2000--one great bull market. SANDERS: It would be great if we could all, as portfolio managers, live by what Paul said. I would love that. The problem is everybody is living quarter to quarter. That's part of the problem. VIERA: Worse than that, day to day. SANDERS: You can log on and look at a mutual fund's performance from one day to the next. That is causing increased volatility. It is also causing increased stupidity in the marketplace because you cannot take a long-term asset Long-term assets or noncurrent assets are those assets usually in service over one year such as lands and buildings, plants and equipment, and long-term investments. These often receive favorable tax treatment over current assets. , like Paul is talking about, and squeeze it into a short-term return vehicle. The companies that I own, when I look out three to five years, look great. Unfortunately, that doesn't work in a quarter-to-quarter environment. PROFIT: You're talking about how long you give a company to go forward and [whether] companies [can turn] on a dime. There is no question that the innovation cycle is shortening. I think part of the problem with a company like Lucent (NYSE: LU) was that they were the industry leader, so when they sold their innovation, they didn't necessarily jump on it right away and they got left behind. When you have a shortening innovation cycle and you are discounting earnings forward--especially with higher P/E stocks, putting all that into the equation--how long do you give a company before you decide that you've got to go somewhere else? SANDERS: That's the question That's the Question is an American quiz game show on GSN, hosted by game show veteran and former Entertainment Tonight reporter, Bob Goen, which premiered in October 2006. that last year caused a lot of people to redress. It caused me to tighten up Verb 1. tighten up - restrict; "Tighten the rules"; "stiffen the regulations" constrain, stiffen, tighten confine, limit, throttle, trammel, restrain, restrict, bound - place limits on (extent or access); "restrict the use of this parking lot"; "limit the on the sell strategy. You can be the best at picking some of the best companies, but people have to recognize the investment decision is when to get in and when to get out. Most people spend a lot of time on the when to get in and very little time on the when to get out. One of the toughest decisions to make, for professionals and nonprofessionals, when it comes to investing, is to sell an investment that you spent so much time trying to get in on. I think you have to have a sound sell strategy in down markets as well as in up markets to prevent tremendous losses or overvaluation o·ver·val·ue tr.v. o·ver·val·ued, o·ver·val·u·ing, o·ver·val·ues To assign too high a value to: overvalued the painting. situations. ST. CLAIRE: As individuals, you want to have your sell strategy going in. That's what hurt everybody last year. B.E.: How do individual investors develop an effective sell strategy? ST. CLAIRE: You go in with an investment plan in place. You go in with an understanding of your risk/return profile, your time horizon, your personal objectives. Understand what your time horizon is so you are going to rebalance that portfolio regularly with respect to sectors. SANDERS: The fourth quarter was painful to me and I had to ask myself why. Why did I make the mistake that I made? As a professional, I have to know that in order to get better. It was based on the sell discipline. This is what I decided to do. I realized the word "sell" had to be thrown out. I exchanged the word "sell" for "replace." One of the things I'm doing now is have a replacement meeting every single solitary week. It forces you to find something else to put into the portfolio to exchange [stocks that are] underperforming. You're going to have to be more selective in the stocks that you choose in order to beat the market because the volatility will continue to increase. Volatility is going to be there and the sector rotation Sector Rotation The action of a mutual fund or portfolio manager shifting investment assets from one sector of the economy to another. Notes: Not all sectors of the economy perform well at the same time. is speeding up. If I can help readers with anything, it's to have a replacement meeting every week or every month.
Paul Viera, EARNEST Partners
Price at 5-Year Estimated
Company (Exchange: Ticket) Recommendation(*) EPS Growth Rate
Sungard Data Systems
(NYSE: SDS) $49.88 19.0%
Barr Laboratories
(NYSE: BRL) 73.38 23.7
Powerwave Technologies
(Nasdaq: PWAV) 38.00 37.5
Rite Aid (NYSE: RAD) 3.88 12.5
(*) As of 2/2/01 Source: Zacks.com Sungard Data Systems. "Essentially, it is a computer service company. What they do is [create] proprietary investment support systems for asset manager firms and brokerage firms. I would highlight [some] reasons why you would want to own SDS 1. (company) SDS - Scientific Data Systems. 2. (tool) SDS - Schema Definition Set. at this point. First, the financial industry, in general, is still poised to have great secular growth in asset management and brokerage business. On top of that, they have something that is called Brokerware, which is their version of allowing brokers to get real-time access to quotes and news. That business has done very well." Barr Laboratories. "Barr Labs is a generic drug generic drug, a drug sold or prescribed under the nonproprietary name of its active ingredients or under a generally descriptive name rather than under a brand or trade name. manufacturer. Right now they have 33 generic compounds on the market. I think the thing that makes them unique is their ability to litigate. They have done a very good job in assailing the patents of the large pharmaceutical companies, and their most noteworthy case, which they won and is now in appeal, is with Eli Lilly Eli Lilly can refer to:
Powerwave Technologies. "[The company] basically designs and engineers ultralinear radio frequency amplifiers. What this does is it gets rid of the noise at the base station so you can get clear reception. I think the reason to look at this company right now is that they are the market leader, in terms of market share." Rite Aid Rite Aid (NYSE: RAD) is a United States retailer and pharmacy chain, operating over 5,000 stores in 31 states and the District of Columbia. Rite Aid Corporation is one of the nation's leading drugstore chains. . "It essentially has one huge problem. They have a lot of debt. If not for their capital structure, this is a very strong company. They are growing same-store sales Same-store sales is a business term which refers to the revenue generated by one of a retail chain's specific outlets during a certain period of time (often a fiscal quarter or a particular shopping season), compared to an identical period in the past, usually in the previous year. at 10% a year since the new management came in a year ago. They have back-of-store sales [pharmaceuticals, candy, and the like] growing at 14% or so a year. So the play here is really to [figure out] how Rite Aid is valued relative to Walgreen (NYSE: WAG), CVS (1) (Concurrent Versions System) A version control system for Unix that was initially developed as a series of shell scripts in the mid-1980s. CVS maintains the changes between one source code version and another and stores all the changes in one file. Corp. (NYSE: CVS), and Longs Drug Stores [NYSE: LDG LDG Landing (aviation) LDG Landing LDG Lodge LDG Landing Gear LDG Lancha de Desembarque Grande (Portuguese Navy) LDG Linz Donawitz Gas LDG Los Alamos Debugger LDG Limb-Girdle Dystrophy ). Rite Aid should be trading at four or five times what it is right now, relative to those others."
Eugene Profit, Profit Value Fund
Price at 5-Year Estimated
Company (Exchange: Ticker) Recommendation(*) EPS Growth Rate
Bank of America (NYSE: BAC) $53.19 10.0%
Microsoft (Nasdaq: MSFT) 64.00 18.2
Home Depot (NYSE: HD) 44.75 21.7
Walt Disney (NYSE: DIS) 29.81 15.3
(*) As of 2/2/01 Source: Zacks.com Bank of America
Bank of America (NYSE: BAC TYO: 8648 ) is the largest commercial bank in the United States in terms of deposits, and the largest company of its kind in the world. . "Bank of America is trading at half the multiples of Citigroup (NYSE: C) currently. They have a 4.3% dividend yield. It has been soft because of [the power problems in] California, and [concerns] about problem loans and the economy slowing in California. I'm excited about the fact that, year-to-date, even with all the negative news, it's outperformed Citi year-to-date, up about 11%." Microsoft. "We began buying it again when the [antitrust] case went back to the appellate court A court having jurisdiction to review decisions of a trial-level or other lower court. An unsuccessful party in a lawsuit must file an appeal with an appellate court in order to have the decision reviewed. . If you look at Microsoft now, from a price-to-earnings growth rate [standpoint], it's one of the cheaper technology companies out there. We don't see the replacement yet for the Wintel system on desktops. We think that [more] companies are going to start moving toward Windows 2000 and that probably will be the precursor of the new technology cycle. We don't think the company will be broken up and if it is, we'll revisit it. I'm not a believer of the sum of the parts is equal to the whole because I would submit that whichever company Bill Gates (person) Bill Gates - William Henry Gates III, Chief Executive Officer of Microsoft, which he co-founded in 1975 with Paul Allen. In 1994 Gates is a billionaire, worth $9.35b and Microsoft is worth about $27b. goes to will have all the value." Home Depot The Home Depot (NYSE: HD) is an American retailer of home improvement and construction products and services. Headquartered in Vinings, just outside Atlanta in unincorporated Cobb County, Georgia, Home Depot employs more than 355,000 people and operates 2,164 big-box . "We know that it has gone down because the economy is slowing, but we see that the problem is temporary and correctable. If you're looking at retailers, obviously it's more expensive than K-Mart (NYSE: KM), but it should be. It's less expensive than Wal-Mart (NYSE: WMT). One of the things that we see, behind the scenes, is that the home builders really have been performing quite well, exceeding their earnings expectations. We think that Home Depot will be a late beneficiary of that, as well as some of the lumber and paper companies. We are using this as a buying opportunity. Its other competitors really can't hold a candle to the model that Home Depot has built, and it's extremely well managed and very focused." Walt Disney Noun 1. Walt Disney - United States film maker who pioneered animated cartoons and created such characters as Mickey Mouse and Donald Duck; founded Disneyland (1901-1966) Disney, Walter Elias Disney . "This is a stock that people [have loved] to hate over the last three years. It really is, and yet we think Disney has a very good collection of assets. Market sentiment Market Sentiment The feeling or tone of a market (i.e. crowd psychology). It is shown by the activity and price movement of the securities. Notes: For example, rising prices would indicate a bullish market sentiment. is that revenue from ABC ABC in full American Broadcasting Co. Major U.S. television network. It began when the expanding national radio network NBC split into the separate Red and Blue networks in 1928. will be light because [the television program] Who Wants to Be a Millionaire? is not as popular [as it was last year]. However, for the first time, Disney is getting revenue participation from its Paris complex. The theme parks are adding to revenue quite positively, and I think that you are going to see it become one of those earnings surprise stories over the next few quarters. Half the people have no idea that Disney owns ESPN ESPN Entertainment and Sports Programming Network and [that company], by itself, is worth a healthy [percentage] of the stock price."
Dail St. Claire, Amalgameted Bank
Price at 5-Year Estimated
Company (Exchange: Ticker) Recommendation(*) EPS Growth Rate
AMR Corp. (NYSE: AMR) $36.75 7.7%
Power-one Inc. (Nasdaq:
PWER) 46.00 46.4
Tellabs (Nasdaq: TLAB) 60.94 28.8
General Motors (NYSE: GM) 53.75 6.0
(*) As of 2/2/01 Source: Zacks.com Her overall picks. "These stocks are from the Quant Fund quant fund A mutual fund having a stock portfolio that is managed according to decisions made by a computer model. The investment performance of a quant fund is only as good as the computer model that drives the fund's investment decisions. portfolio. We create a portfolio based on expected returns through our [quantitative pricing] model. Based on expected return, the model spit out Verb 1. spit out - spit up in an explosive manner splutter, sputter cough out, cough up, expectorate, spit up, spit out - discharge (phlegm or sputum) from the lungs and out of the mouth 2. the following names: American Airlines American Airlines Major U.S. airline. American was created through a merger of several smaller U.S. airlines and incorporated in 1934. It continued to buy the routes of other airlines, becoming an international carrier in the 1970s; its routes include South America, the (AMR (1) (Adaptive Multi-Rate) A variable rate speech codec selected by the 3GPP for the 3G evolution of the GSM cellphone system (WCDMA). Using the Algebraic CELP (ACELP) compression technology, AMR provides toll quality sound at transmission rates from 4.75 to 12. Corp.), Power-one, Tellabs, and General Motors, [Two] value and two growth. In terms of the 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. , they are cheap value stocks, based on traditional factors, Among the factors that we looked at for Tellabs and Power-one were earnings estimate revisions. These, in particular, represent a trend. These stocks could be in the portfolio for a year in terms of our continuation of expected returns. I would also add that we keep the beta [a measurement of a stock's volatility] as close as possible to 1, again versus the S&P 500." [Any stock with a beta higher than 1--the coefficient for the S&P 500--is more turbulent than the market.]
Steve Sanders, MDL Capital
Price at 5-Year Estimated
Company (Exchange: Ticker) Recommendation(*) EPS Growth Rate
EMC Corp. (NYSE: EMC) $79.06 30.6%
AOL Time Warner (NYSE: AOL) 54.59 39.4
Palm Inc. (Nasdaq: PALM) 27.19 41.7
Genentech (NYSE: DNA) 61.13 24.7
(*) As of 2/2/01 Source: Zacks.com EMC (1) (EMC Corporation, Hopkinton, MA, www.emc.com) The leading supplier of storage products for midrange computers and mainframes. Founded in 1979 by Richard J. Egan and Roger Marino, EMC has developed advanced storage and retrieval technologies for the world's largest companies. . "it's the leading provider of data storage systems, I like EMC because it owns that space. It's the 800-pound gorilla. The sector is growing quickly. When I looked at [EMC's] 2001 revenues, it should grow between 30% and 38%, which is up from 30% for the year 2000. So you're not talking about a company that had a tough time last year and is trying to bounce back. This is a company that definitely, when we look at three to five years down the line, if not two years down the line, everybody is going to say I wish I had owned and I wish I [had] bought it at this point." AOL (A division of Time Warner, Inc., New York, NY, www.aol.com) The world's largest online information service with access to the Internet, e-mail, chat rooms and a variety of databases and services. Time Warner. "The merger with Time Warner was a concern of mine early on because this was a huge company getting together with a fat company. I was encouraged by the fact that they are closing some of the [Warner Bros BROS Brothers BROS Benefits and Retirement Operations Section (King County, Washington) BROS Barnes and Richmond Operatic Society (London, UK) . Studio Stores] and they are cutting the fat in terms of integrating the two companies. AOL has moved from being a technology company to really more of an entertainment company now. I like the fact of how the entertainment industry is beginning to shape up by using the technology that is available today, The best play out there for doing that is AOL. We tend to think of AOL in just the U.S., but they are also the international player, and that's also very important to me when it comes to Internet access See how to access the Internet. . With AOL, their customer base is branded and it's loyal and they haven't seen a retrenchment re·trench·ment n. The cutting away of superfluous tissue. from their advertisers. Now, when you take that with all the products that Time Warner brings, you've got magazines, you've got music, you've got all kinds of things. We haven't seen a model like this." Palm. "I like [Palm] a lot. Palm is leading the wave of mobile Internet Refers to gaining access to the Internet using a lightweight, handheld device. See Mobile IP, PDA, smartphone and mobile TV. access. That's what everybody wants. The wireless communication companies have been trying to find a way To surf and find all the information you want to find without connecting it to anything. That's what Palm allows you to do." Genentech. "Genentech is a biotechnology company, and biotechnology firms can be somewhat volatile. So I want to go with who is one of the largest there. They use genetic information to develop and market human pharmaceuticals, treatments that fight specific diseases. For example, they have one that is a solution for cystic fibrosis cystic fibrosis (sĭs`tĭk fībrō`sĭs), inherited disorder of the exocrine glands (see gland), affecting children and young people; median survival is 25 years in females and 30 years in males. . They have an antibody that fights non-Hodgkins lymphoma [and] breast cancer. So basically a company like this [creates drugs for] people who don't want to age It's clear the baby boomers See generation X. don't want to age. They want to live longer and they want to live a higher quality of life, [Genentech is in the] business of doing that." April 2000 B.E. Stock Update Last year, our roundtable participants included two stock pickers, Michael T. Manns, a portfolio manager with American Express American Express (NYSE: AXP), sometimes known as "AmEx" or "Amex", is a diversified global financial services company, headquartered in New York City. The company is best known for its credit card, charge card and traveler's cheque businesses. Asset Management, a Minneapolis large-cap growth manager, and Russell C.B. Ewing II, a portfolio manager with New York-based Paradigm Asset Management (No. 6 on the BE ASSET MANAGERS list with $3 billion in assets under management in 1999), and two fixed-income specialists, Frankie Hughes, president of Hughes Capital Management, an institutional money management firm based in Alexandria, Virginia Alexandria is an independent city in the Commonwealth of Virginia. As of the 2000 census, the city had a total population of 128,284. Located along the Western bank of the Potomac River, Alexandria is approximately 6 miles (9.6 kilometers) south of downtown Washington, DC. , and Valerie Mosley Diamond, a fixed-income portfolio manager for Wellington Management Co. in Boston, which subadvises several of the Vanguard family of funds Family of Funds A group of mutual funds offered by one investment or fund company. Each mutual fund has different characteristics and can range depending on investment objective. Also referred to as a "Mutual Fund Family" or simply a "Fund Family". . Bonds performed better than stocks in 2000 (see "The Great Mutual Fund Roundup" in this issue). Hughes recommended Petroleos de Mexico finance bond (maturity date: February 2007), which has a coupon of 8.75%, and South Korea Electric Utility (maturity date: December 2003), which has a coupon of 6.375%. Mosley Diamond, on the other hand, made broad recommendations regarding different types of fixed-income securities Fixed-income securities Investments that have specific interest rates, such as bonds. , such as bonds issued by European banks and bonds backed by REITs. The chart below will show just how well our stock pickers performed:
Michael T. Manns, American Express
Price Current
Company at Value of
(Exchange: Current Recommendation Total $1,000
Ticker) Price (*) Return Investment
Cardinal $95.87 $49.31 94.4% $1,944
Health
(NYSE:
CAH)
Safeway 51.23 34.31 49.3% 1,493
(NYSE:
SWY)
Microsoft 60.81 116.58 -47.8% 522
(Nasdaq:
MSFT)
Portfolio 32.0%
Average
Current 3,959
Value of
$3,000
Investment
(*) As of 2/2/01 Source: Yahoo! Finance.com
Russell C.B. Ewing II, Paradigm Asset Management
Price Current
Company at Value of
(Exchange: Current Recommendation Total $1,000
Ticker) Price (*) Return Investment
Finova $1.21 $33.81 -96.4% $36.00
Group
(NYSE:
FNV)
IFX 4.25 31.88 -86.7% 133.00
(Nasdaq:
FUTR)
Sysco 27.03 38.13 -29.1% 709.00
(NYSE:
SYY)
Portfolio -70.73%
Average
Current $878.00
Value of
$3,000
Investment
(*) As of 2/2/01 Source: Yahoo! Finance.com |
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