Profiles: 7 GREAT STOCKS TO BUY Wednesday, January 06 @ 00:00:00 MST by admin (470 reads)
One downside of the stock market's big gain is that it leaves fewer choices for bargain shoppers.
In posting a total return of 27% for the year (and a stunning advance of nearly 70% since March 9), the Standard & Poor's 500 Index ($INX) saw more than 400 of its members gain in price. Still, at 15 times estimated 2010 profits, the market does not appear to be excessively valued.
Investors who caught the big wave are probably too busy tallying profits to worry about the paucity of bargains, but the run-up makes it hard to harvest sizable gains and reinvest the proceeds in issues that are more moderately priced. It's also a barrier to those who have been out of the market and are looking for a reasonable re-entry point. So we sifted through the also-rans, looking for stocks that were overlooked during the past year's mad rush.
Our search focused on stocks trading at a discount to the market's price-earnings ratio as well as to their own historical P/E ratios. We also screened for companies trading for lower-than-usual multiples of sales, cash flow (earnings plus depreciation and other noncash charges) or book value (assets minus liabilities).
Of course, the bargain bin is always full of stocks that aren't truly bargains. To weed them out, we favored companies with solid balance sheets and positive cash flow (that is, they produce actual cash earnings from operations, not just paper profits). The seven stocks below emerged. Although all of them face challenges of some sort -- that's why they're cheap -- we think their virtues will become more apparent over time. (Share prices and related ratios are as of the market's Dec. 30 close.)
Profiles: Funds to Fix Your Portfolio Friday, February 08 @ 00:00:00 MST by admin (1178 reads)
If, like many of us, you've taken stinging losses, these still-great giant funds can help you rebuild. Yes, they're down -- most things are -- but their quality still shows.
If, like so many of us, you're retooling your 401(k) after this very rough year, this is a good place to start looking.
Vanguard Primecap (VPMCX), Fidelity Blue Chip Growth (FBGRX), American Funds American Mutual A (AMRMX), Vanguard Small Cap Growth Index (VISGX) and Oakmark International I (OAKIX) have each lost tons of money this year, but they've lost less than most of their rivals. They or funds like them can form the foundation of a dream retirement account.
Vanguard Primecap This amazing fund never even seems to wobble. Over the past 10 years it has been ranked among the top 2% of large-capitalization growth funds, and it remains on that lofty plane this year, having managed to decline only 31.9%, as of Nov. 6, nearly 8 percentage points fewer than the S&P 500 Index ($INX).
"Very few managers in the mutual fund universe have as good a long-term record as these guys," says Daniel P. Wiener, the editor of the Independent Adviser for Vanguard Investors newsletter, who adds that he put two children through college by investing in the fund. "They continue to buy growth companies at value prices."
Growth funds often founder in down markets because their managers typically are willing to pay premiums to capture the group's above-average earnings. Primecap, on the other hand, pays about 10% less than its rivals on such measures as price to book and price to sales.
Primecap is closed outside the 401(k) world, but the same management team also runs three funds that are open: Primecap Odyssey Aggressive Growth (POAGX), Primecap Odyssey Growth (POGRX) and Primecap Odyssey Stock (POSKX).
Fidelity Blue Chip Growth Also unwilling to pay up for growth, this fund has been dragged up by a relatively new manager, Jennifer S. Uhrig, at the helm just two years. Formerly a performer in the bottom half of its Morningstar category, this Fidelity fund now ranks in the top third, with a year-to-date performance of minus 38%, not quite 2 percentage points better than the market.
The fund's biggest weightings, in Microsoft and Cisco Systems, have dragged it down this year, but a number of others have proved more timely, including Wal-Mart Stores and Genentech. (Microsoft is the publisher of MSN Money.)
Morningstar faults the fund for hewing too closely to its Russell 1000 ($RUI.X) market benchmark. Because managers are evaluated in comparison with indexes, index hugging is an occupational hazard. But compared with the S&P 500, the fund shows considerable independence, with about one-half the market weighting in financials, underweighting in energy and overweighting in technology.
Since it's rare for growth funds to excel in a difficult market, even against each other, Uhrig's feat in 2008 is particularly noteworthy
American Funds American Mutual A When it comes to consistency in excellence, American Funds take a back seat to no one. These portfolios are uniquely managed. Each of the multiple managers, all of them employees of Capital Research & Management and thus imbued with the same corporate culture, is given a share of the fund's $16.28 billion in assets to manage independently of the others. Thus while they collaborate on one level, they compete on another. Infusing the chief principle of capitalism into a mutual fund is a good thing.
Always in the top tier of similar large value funds, this year the fund ranks in the seventh percentile, with a loss of 30.7%. It has been helped by a relatively high 13.5% cash holding, as well as an avoidance of the worst of the financial mess, owing to Capital Research's longtime attention to the balance sheets of its holdings.
This fund owns only about one-third as many financial names as the typical value fund and about two times as much technology. It's also overweight industrial names and light on energy. In a write-up in June, before the turmoil of September and October, Morningstar analyst Greg Carlson called it a "tame" fund. Shareholders can be grateful it is.
Vanguard Small Cap Growth Index The lowest-cost way to invest, indexing, is often the most productive as well, and this excellent fund is a good example. In 2008 and throughout the last decade, this fund has outperformed two-thirds of similar funds, helped by a rock-bottom expense ratio of 0.22%. Investors in exchange-traded funds can buy it even more cheaply under the ticker symbol VBK; its expenses are 0.11%.
Down 39.9% this year, the mutual fund tracks the MSCI U.S. Small Cap Growth Index ($MSCISG.X), which has more flexibility than most such measures because it doesn't automatically toss out companies that have grown too large to meet the benchmark's initial size constraints. By definition, the most successful companies eventually fit this bill -- their rising market price drives up their total capitalization.
Flexibility cuts down on turnover, a hidden expense because trading is paid for out of fund assets, not the expense ratio.
In the great bear market of the 1970s, small caps outperformed big caps by a wide margin. Market scholars can't agree why. They are riskier than big companies, yet they prospered more in those bad economic times. Since the current economy is looking more and more like it did back then, small caps could provide a refuge.
Oakmark International I Over the long term, this fund beats 95% of foreign large value funds. This year that outperformance has slipped; currently it's beating 86% of them, with a year-to-date loss of 41.2%.
Founding manager David Herro is a heroic stock picker. He owns just 45 names, and a third of his $3.03 billion in assets is focused on the 10 largest positions, a diverse collection of banks, including Credit Suisse Group, high-tech companies such as SAP and industrial giants, including BMW Group.
The opposite of a closet indexer, Herro lays down big bets, among them a fourfold overweighting in software and media stocks. He also avoids some sectors entirely, with goose eggs in telecommunications and energy.
In his most recent letter to his shareholders, Herro notes that the current market is the worst in his 23-year career. Despite that, he writes, "and utterances from the likes of Hugo Chávez, capitalism will survive." Indeed, Herro argues, the next 20 years will be more productive for investors than the last 20, which themselves were among the best in history.
"Consider the transformation occurring in the emerging markets," he writes, "where three-fifths of the world's population is slowly moving from a state of poverty to one that is more prosperous."
Like Herro, I haven't given up on capitalism. Funds like these are going to do very well for their shareholders over the next five years or more. If, like me, you've lost a fortune in this bear market, give yourself a chance to make it back, and more, when recovery arrives. It will.
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One downside of the stock market's big gain is that it leaves fewer choices for bargain shoppers. 
