Six investment gurus with topnotch track records recommend securities to snap up for the long haul.
Six investment gurus with topnotch track records recommend securities to snap up for the long haul.
Though the calendar has changed, the basics of smart investing haven't: The best way to realize your hopes is still to load up on stocks that have solid financials, strong growth prospects, and the ability to capitalize on the leading trends. That's true whether your primary goal is funding a comfortable retirement, providing security for your kids, or something more modest.
To find pros whose track records prove they know how to pick wish-come-true stocks, we consulted The Hulbert Financial Digest (888-HULBERT; www.hulbertdigest.com), a publication that ranks more than 160 investment newsletters and their model portfolios. We zeroed in on the newsletters whose portfolios generated the highest five-year returns through Sept. 30, 1999. Investment gurus from six of those newsletters each gave us a favorite stock pick for the coming decade.
Their choices are key companies in today's hot industriestelecommunications, electrical, medical products, financial services, and computer productsso you may pay a premium for them. But our pros believe that over three to five years, you'll see more than enough appreciation to make up for their steep price tags.
Still, you can increase your chances of capturing even greater growth. Al Toral, editor of the newsletter The Pure Fundamentalist (800-233-5922), recommends that you use dollar cost averagingbuying the same dollar amount of stock every month. In a down market, you'll pick up extra shares at a lower price.
"This is destined to be the world's leading telecommunications company," predicts Toral. That's because the September 1998 merger of WorldCom and MCI gave the resulting corporation a major presence in all areas of telecommunications, including long-distance and local phone service, as well as computer communications.
MCI WorldCom is cooking up deals to expand its reach even further. To boost its wireless presence, it has purchased SkyTel, a national paging company with 1.6 million customers, and bought CAI Wireless Systems, a Northeast regional wireless company whose equipment network will help the telecommunications giant bypass costly Baby Bell networks. MCI WorldCom also plans to acquire Sprint, which has around $80 billion in total market value.
Another plus: "It has strong, smart management, and management is what has the biggest impact on how well a company performs," says Toral. Moreover, the timing is right: As we start the new millennium, the prospects for telecommunications are crackling. Wireless services show particular promise, data transfer capabilities are growing rapidly, and consumer demand for wireless products is intensifying.
MCI WorldCom's well-established European network, which mostly serves business customers, continues to bring in profits. The company's Avantel unit is gaining ground in the lucrative Mexican market, and other units are increasing their exposure in Japan and Hong Kong.
Such growth initiatives have turbocharged MCI WorldCom's profits. Company revenues more than doubled from 1998 to 1999.
Compaq Computer is the world's largest supplier and second-largest manufacturer of personal computers. Still, its stock price, at about 30*, is a relative bargain. The industry leaderDell Computercosts nearly 50 percent more. Also, Compaq's P-E ratio, the stock's current price divided by the company's earnings per share, is 52 vs 69 for Dell.
Why such a bargain? Partially because of Compaq's once outmoded distribution process. "Compaq was a dinosaur; it sold only through distributors," says John Buckingham, associate editor of The Prudent Speculator (800-258-7786; www.alfrank.com), and co-manager of its portfolio. "It also had a lot of money tied up in inventory. But the company has changed both its management and distribution processes, so it now sells directly to consumers and retailers, and can meet demand without building up inventory," says Buckingham. "I expect demand for personal computers to remain strong over the next decade," he adds. "With Compaq, you can get an industry leader at a good value."
There's also Compaq's strong past performance: Unit sales have almost tripled in the last five years, and earnings have grown about 31 percent annually over the same period. Then there are recent changes that enhance the stock's promise. These include a workforce reduction that will lower the company's operating expenses by $2 billion, and the acquisition of a majority interest in AltaVista, a major Internet search engine.
"Compaq has a strong balance sheet and no long-term debt," adds Buckingham. "I equate it with IBM in the early '90s: Investors had given up on that company, but it turned around and became a winner."
Buckingham expects Compaq to do the same. It should reach 52, up from its current price of 30, within three years, he predicts.
US Bancorp, a financial services company, gets top marks from Jim Schmidt, publisher and editor of Timer Digest (800-356-2527).
"The company has above-average prospects for long-term growth," he says. "The financial services sector will remain strong over the next decade, because consumer spending and investing will become more global." Low inflation and interest rates, a strong market for investing, and increasing credit card use support the financial services industry's prospects.
The company is well positioned for growth. "US Bancorp has a strong presence in the Midwest," says Schmidt. Moreover, it's expanding. With the recent purchase of Western Bancorp and Peninsula Bank of San Diego, US Bancorp has gained 42 branches in California.
US Bancorp owns Piper Jaffray, a large, national brokerage firm. And it's boosting its consumer services. For one thing, Piper Jaffray now boasts a beefed-up Web site with updated online investing, bill payment capabilities, and other options.
Profits grew last year, thanks in part to higher service charges and revenue from trading accounts and investment banking.
US Bancorp's earnings have soared in recent years, and its share price has grown from an annual average of about 14 in 1995 to about 23 now. Schmidt expects the stock's price to make even greater strides over the next few years.
"EMC is far ahead of its peers in products and technology, and it will do well in the coming decade," predicts Jim Collins, editor of OTC Insight (800-955-9566). The company, a major manufacturer of computer storage products, offers services for mainframe computing systems. It provides storage and retrieval technology as well as information management and protection software to banks, telecommunications companies, Internet service providers, airlines, manufacturers, and other businesses.
"EMC gets good margins for its products, and management has improved and matured over the years," Collins adds. In 1998, Fortune magazine named EMC one of the "World's Most Admired Companies" in its annual executive survey.
"This should be a core technology holding," says Collins. "I expect the Internet revolution to continue, leading to growth for software and hardware companies." The increasing availability of audio and video data on the Net should intensify demand for storage products.
In a promising expansion, EMC recently purchased Data General, which supplies computing and data storage systems. The acquisition will allow EMC, which specializes in higher-end products, to compete in the more affordable segment of the business. It may also bring cost-cutting opportunities.
EMC's annual revenues surged from $171 million in 1990 to $3.97 billion in 1998. Average annualized earnings over the past five years were 50.5 percent. Its share price has catapulted from an annual average of about 5 in 1995 to around 108 now. "If interest rates don't rise and the stock market continues to tolerate high P-E ratios, EMC's stock could go up to 200 per share by the end of 2002," says Collins.
VISX pioneered the development of a laser for surgery to cure nearsightedness, astigmatism, and farsightedness. It produces the only laser that's FDA-approved for those procedures. That's why Louis Navellier, publisher and editor of Louis Navellier's MPT Review (800-454-1395; www.mptreview.com), sees so much promise in the company.
"Baby boomers may be turning gray, but the thought of wearing glasses is even more unappealing to them. They'd rather get their eyes fixed than their hair," Navellier says. "After the operation, patients spread the word to their friends."
The popularity of laser eye surgery has soared in recent years. In 1998, 400,000 laser vision correction procedures were performed; in 1999, about 900,000 operations were expected. VISX gets a royalty on more than 75 percent of the procedures performed. To keep up momentum, VISX has mounted a major consumer advertising campaign. The company has taught more than 4,000 physicians to perform laser vision correction surgery using its equipment and is training them to run their LVC businesses more successfully.
VISX holds more than 140 patents for laser eye surgery technology, and it markets the system overseas. Earnings growth has soared, with gross margins of about 95 percent per procedure. The company's share price has risen more than 900 percent over the past five years, from an annual average of about 5 in 1995 to about 48.
"GE is one of the world's largest industrial companies, and it belongs in every portfolio," says Arnold Langsen, editor of Prudence & Performance (425-836-4744; www.towerview.com). "In many ways, GE behaves like a mutual fund. It's highly diversified, since it has businesses in many sectors. It's a very forward-thinking company."
Business segments include aircraft engines, appliances, broadcasting, computer services, industrial products, insurance, lighting, locomotives, medical equipment, motors, plastics, and power generation. In 1999, revenues increased in all segments except appliances.
Worldwide growth is steaming ahead. In a transaction worth about $40 million, GE Engine Services won a contract to maintain and service the expanded fleet of Australia's largest regional airline. GE Power Systems recently won agreements for projects involving two of the world's largest oil and gas companies in Mexico and Brazil. The subsidiary also has new equipment and service contracts with power plants in Venezuela and Chile. The work is expected to bring in nearly $280 million.
The company's financial services arm and its manufacturing service contracts division are increasingly profitable as well, and its customer Web site is a growing moneymaker. It launched its e-commerce business in 1996, and volume is now close to $2 billion.
GE has also clamped down on quality problems: Improvements should save close to $2 billion annually.
The 108-year-old company's share price growth seems unstoppable. In 1995, GE's stock traded at about 30, on average; it's now up to about 154. In December, it announced a three-for-one stock split, to occur this year.
Leslie Kane. Stock picks to start the millennium off right.