This is the new "investment derby" for 2000all stock portfolios (no funds, as were included last year), with some new stock pickers entering the fray.
We asked seasoned money managers to assemble short- andlong-term portfolios. We'll follow their progress over the next year.
If you don't have a private money manager to choose your stocks, we'vegot the next best thing.
We asked three investment experts to construct hypothetical $50,000 portfolios,one with a three- to five-year time horizon, the other with a 10-year timeframe. All of the stocks entered the portfolios on July 30, 1999, at close-of-marketprices. We'll update returns every three months for a year, and see whichportfolios do best.
In our previous model-portfolios series, which we launched in last year'sFinancial Guide and wrapped up in our Oct. 25 issue, we included bonds tohedge against a market dive. This time, we're going for the brass ring,with all-stock selections.
Besides asking our experts to stick to stocks, we required them to createportfolios doctors can replicate, and to choose stocks that trade on majormarkets. We also asked that they avoid IPOs, futures, options, and pennystocks; reinvest all dividends and gains; and make changes to the portfolioonly on the last trading day of the month.
The equities in these portfolios run the gamut from relatively conservativeto speculative.
Ferrare is a vice president and senior portfolio manager at PinnacleAssociates, which manages more than $1 billion for high-net-worth individuals,foundations, trusts, and pension funds. He has 13 years' experience as amoney manager and has served on the Estate Planning Committee of The NewYork State Society of Public Accountants, and on the Charles Schwab &Co. Institutional Advisory Board.
Ferrare favors value stockscompanies trading for less than is warrantedby their underlying value. "The low price may reflect a temporary reductionin earnings or investors' misperception of the business," he says."When the company recovers, its stock price often shows superior performance."
"I expect the dollar to weaken in the coming years, and foreigneconomies to strengthen. Those factors will promote increased exports. Companieslike 3M [Minnesota Mining and Manufacturing], Hewlett-Packard, and Intel,which sell their products and services throughout the world, should benefitgreatly.
"Also, crude oil prices have increased. I expect oil servicecompanies to see significant earnings gains, resulting in higher share prices.In particular, Halliburton and Schlumberger are poised to do well.
"These factors will also affect oil-related companies in thelong-term portfolio."
100 shares at 48 1/16
Serves customers in the southern US through its subsidiary, BellSouthTelecom. Has foreign growth opportunities, especially in Latin America,where it has a large presence in the wireless sector.
Chase Manhattan (CMB-NYSE)
70 shares at 77 1/16
One of America's largest bank holding companies, based on assets. Operatesin 52 countries. Its loan syndication, bond, and merger advisory businesseshave gained market share.
Daimler Chrysler (DCX-NYSE)
75 shares at 72 1/8
Builds Mercedes-Benz, Chrysler, Jeep, Dodge, and Plymouth cars and lighttrucks, and Mercedes-Benz commercial trucks. Owns Daimler-Benz Aerospace,which makes aircraft and defense products, plus a financial-services andinformation-technology company. Should benefit from better cost structuredue to the merger of Daimler-Benz and Chrysler.
100 shares at 46 1/8
One of the world's leading providers of products and services for oiland gas exploration and production. Its global scope is increasingly important.
50 shares at 104 11/16
Designs and manufactures electronic products and systems for computationand measurement. Cost-control efforts should boost bottom line.
75 shares at 69
A leading manufacturer of integrated circuits, computer modules and boards,network products, and the Pentium microprocessor. Demand for PC productsaffects all of the company's product lines and geographic markets.
MidCap SPDR (MDY-ASE)
75 shares at 76 5/8
Called "spiders," these are shares in a unit investment trustagroup of stocks that seeks to replicate the Standard & Poor's MidCap400 Index. Trades on the American Stock Exchange. Mid-cap sector shouldpick up growth in coming years.
Minnesota Mining and Manufacturing
50 shares at 87 15/16
3M products include Post-it Notes, Scotch Tape, Scotchgard, and varioussealants, floor coverings, and office supplies. Also makes products foruse in graphic arts, medicine, and dentistry. Restructuring and cost cuttingshould help boost profits.
The St. Paul Companies (SPC-NYSE)
150 shares at 31 1/8
Major US property and casualty insurance company. Other business linesinclude investment banking and asset management. Plans to focus on greatercost-saving efforts and has an aggressive share buyback program to supportshare earnings.
75 shares at 60 9/16
Engaged in oil drilling and related services. Operates in more than 100countries. Based in the Netherlands.
Because of rounding, numbers may appear not to total $50,000.
"I expect a stronger euro, which will benefit international stocks,"says Ferrare. "American Depositary Receipts in foreign companies suchas Rhone-Poulenc could bring superior earnings growth and currency gains.
"The telecommunications sector should continue its excellentadvance. Phone companies have tremendous expansion opportunities, due todevelopments in high-speed Internet access and wireless communications.
"I also see positive signs for companies operating local televisionstations, such as A.H. Belo."
AEGON Insurance Group (AEG-NYSE)
63 shares at 76 1/8
One of the world's largest insurance groups, ranked by market capitalization,assets, and net income. Has major operations in Hungary, the Netherlands,Spain, the United Kingdom, and the US. Has a broad, profitable product range,including pension and fixed-annuity businesses.
A.H. Belo (BLC-NYSE)
200 shares at 20 3/16
Owns and operates 17 network-affiliated TV stations, two local cablenews channels, and seven daily newspapers, including The Dallas MorningNews and The Providence Journal. Earnings growth seems likely in the yearsahead.
200 shares at 25 1/16
Develops biopharmaceuticals and vaccines, and participates in the bloodtesting market. Sold its diagnostics division and now has cash resourcesto expand its core businesses.
Citizens Utilities (CZN-NYSE)
500 shares at 11 7/8
Supplies telecommunications, electric, gas, water, and wastewater servicesin 22 states. Aggressively expanding its local exchange business, and aimsto become the second-largest independent telecommunications company in theUS.
Micron Technology (MU-NYSE)
86 shares at 61 5/8
Manufactures computers, and produces and sells semiconductor componentsused in the computer, telecommunications, and office automation industries.Its new relationship with Intel should prove favorable for profits.
Noble Drilling (NE-NYSE)
200 shares at 22 11/16
Provides drilling, engineering, and production management services tothe oil and gas industry. Currently refurbishing existing rigs to operatein deeper water, which should help exploration companies find new sourcesof oil.
Rhone-Poulenc ADR (RP-NYSE)
100 shares at 483 /8
World's seventh-largest chemical company, based in France. Makes chemicals,fibers, and pharmaceuticals, which are sold primarily in Brazil, Europe,and North America. Planned merger with Hoechst AG should make it one ofthe world's top pharmaceutical and agricultural companies.
150 shares at 33 1/16
World's largest provider of supply ships and marine support servicesto the offshore oil-drilling industry. Offers towing, transport, and bargeservices. Cost-cutting efforts should help long-term earnings prospects.
US West (USW-NYSE)
100 shares at 57 5/16
Provides local and long-distance telephone services in 14 Western andMidwestern states.
USA Networks (USAI-Nasdaq)
100 shares at 47 15/16
Diversified media and electronic-commerce company. Owns the USA Network,the Sci-Fi Channel, and the Home Shopping Network. Has increased its spendingfor original programming, which should result in better ratings and increasedadvertising revenue.
Janjigian is the director of the Forbes Investors Advisory Instituteand the editor of the Forbes Special Situation Survey, a stock market newsletterfor individual investors. He's a weekly commentator for Business News Network,which is broadcast live in 25 major US markets. Janjigian has a doctoratein finance from Virginia Polytechnic Institute and State University andhas served on the faculties of four universities.
"I look for special situations, such as stocks whose prices maybe down temporarily due to investors' overreacting to bad news, or othersituations that don't stem from poor fundamentals," he says.
"I've selected a mix of value and growth stocks, for maximumpotential performance. Growth stocks do well over short time frames. Someof the companies in the portfolio are only marginally profitable, but theyhave great potential for strong earnings and share-price increases."
American Management Systems
271 shares at 29 1/2
Consulting firm that specializes in corporate and international banking,consumer credit management, security control systems, and bank managementinformation systems. A recent agreement with an IBM business unit bringsprofit potential.
American Superconductor (AMSC-Nasdaq)
571 shares at 14
Manufactures products in the field of high-temperature superconductingwires, which transmit far more electricity than conventional wires. Holdsabout 50 US and foreign patents.
1,391 shares at 5 3/4
Develops software used to design cellular phones, communications systems,computer circuit boards, motors, and other electronic devices and systems.Contract with the US Air Force brings long-term profit prospects.
338 shares at 23 11/16
Produces portfolio-tracking software used by investment managers worldwide.
Barrick Gold (ABX-NYSE)
269 shares at 18 9/16
International gold producer with several low-cost mines in North andSouth America. Has impressive operating margins and anticipates strong cashflow growth.
Cambridge Technology Partners (CATP-Nasdaq)
292 shares at 17 1/8
An international consulting firm that provides information technologyplus software development and implementation. Recently combined some operationsinto a single unit. Increased cost control should improve operating margins.
75 shares at 39 15/16
Internet retailer selling toys, videos and video games, software, books,and music. Launched online store in 1997; went public in 1999. Has a relationshipwith America Online.
125 shares at 39 15/16
Produces printed circuits and backplane assemblies used in the computer,telecommunications, and industrial-automation industries. Revenues for theprior 12 months were up about 23 percent.
"I still believe in large-caps for this period, but I've includedsome smaller companies, which have the potential to outperform large-capsover a long time frame. This portfolio emphasizes value over growth. Someof these businesses have recently undergone changes that are likely to resultin increased earnings and better returns."
154 shares at 26
One of the world's largest toy manufacturers. Has licensing rights toStar Wars, Pokemon, and Furby.
HCR Manor Care (HCR-NYSE)
392 shares at 20 3/8
One of the country's largest providers of long-term care, with almost300 inpatient skilled nursing and rehabilitation facilities. Its rapid expansioninto the assisted living market and strong financial structure favor growth.
Helen of Troy (HELE-Nasdaq)
299 shares at 16 11/16
Develops and markets hair care and foot care products. Distributes VidalSassoon, Revlon, and Dr. Scholl's brands. Recent acquisitions plus licensingand distribution contracts should bring stellar earnings.
Kaufman and Broad Home (KBH-NYSE)
385 shares at 20 13/16
America's largest home builder. Constructs and markets single-familyhomes in California and other Western states; also builds in Mexico City,Paris, and Toronto. Acquisitions should speed expansion.
MTS Systems (MTSC-Nasdaq)
761 shares at 10 1/2
Produces mechanical-testing and simulation devices and systems primarilyfor the auto and aerospace industries. Cost cutting and increased salesshould improve profits.
744 shares at 10 3/4
Provides pharmacy management services and drug therapy to nursing homes.Recent acquisitions expand its reach and boost revenues.
Pennzoil-Quaker State (PZL-NYSE)
338 shares at 14 13/16
Makes automotive consumer products, including motor oil and car maintenancechemicals. Franchises Jiffy Lube service centers. Its products are pickingup market share, and cost-cutting moves should fuel profits.
Walt Disney (DIS-NYSE)
145 shares at 27 9/16
Produces movies and videos; owns and operates theme parks, a cruise line,and television stations, including ESPN. Recently bought a large stake inInfoseek, the Internet search company, which is increasing revenue.
Pecoraro is portfolio manager and a principal of PVG Asset Management,an investment management firm partially owned by the Invesco Funds Group.Pecoraro, who has been with PVG for 18 years, was previously portfolio managerand vice president at Oppenheimer Asset Management in Denver. He is a charteredfinancial analyst.
"Our current approach is to take trading profits on our stocks afterlimited appreciation, and to sell quickly if they fail to rise," saysPecoraro. "It's likely the major stock averages won't be significantlyhigher in five or 10 years than they are today."
Pecoraro's approach is unusual: He believes the short- and long-termportfolios should be identical.
"If you're worried about protecting principal, hold some money-marketsecurities and bonds in a separate fund, but aim for the best near-termreturns possible from your stocks, no matter what your investment time horizon.I've avoided cyclical companies that might be out of favor when you needto sell, and selected companies with laggard stock prices but with strongbusiness franchises that can drive earnings growth.
"I have more confidence in short-term company forecasts thanin long-term predictions. It's like the weather: You can be more accurateforecasting for tomorrow than next week.
"In this portfolio, I've spread my $50,000 among 12 stocks, inroughly equal amounts."
Abbott Laboratories (ABT-NYSE)
97 shares at 42 15/16
Makes drugs, diagnostic testing equipment, laboratory and hospital instruments,infant formulas, and nutritional products. Brand names include Similac,Murine, and Selsun Blue. Joint venture with Takeda Pharmaceuticals, a Japanesecompany, should contribute to profits.
Eastman Kodak (EK-NYSE)
61 shares at 69 1/8
The world's largest producer of photographic products. Has recapturedsome of the US market share taken away by Fuji Photo.
General Dynamics (GD-NYSE)
64 shares at 67 5/16
Makes Trident and Seawolf submarines, combat systems, tanks, and informationsystems and technology. Has made a number of acquisitions, including a companythat designs and builds US Navy auxiliary ships, and has expertise in commercialshipbuilding. Its acquisitions are likely to boost share earnings.
383 shares at 10 7/8
One of the nation's largest providers of managed health care services.
Knight Ridder (KRI-NYSE)
77 shares at 53 13/16
Publishes 31 daily newspapers, including The Miami Herald, The Inquirer,and Philadelphia Daily News. It's keeping costs down and expanding its onlinebusiness.
Lockheed Martin (LMT-NYSE)
120 shares at 34 13/16
Makes space and missile systems, electronics, aeronautic systems, andinformation systems for governments and commercial customers. Produces militaryaircraft, Trident ballistic missiles, and Titan launch vehicles. Continuedintegration of its acquired units will help increase profits.
Lowe's Companies (LOW-NYSE)
79 shares at 52 3/4
One of the most popular warehouse superstore retailers. Operates building-materialsand home-improvement superstores in more than 35 states.
Omega Healthcare Investors
181 shares at 23
A real estate investment trust that invests primarily in long-term-carefacilitiesa sector of the health care market with strong earnings potential.
PairGain Technologies (PAIR-Nasdaq)
441 shares at 9 7/16
Provides telecommunications products based on high-speed data transmissionover existing copper telephone wire. Company's digital-subscriber-line technologyhelps to alleviate bottlenecking problems.
112 shares at 36 15/16
World's leading commercial provider of satellite-based communicationsservices. Operates a global network of state-of-the-art satellites and technicalground facilities.
Seagate Technology (SEG-NYSE)
155 shares at 26 7/8
Manufactures and markets magnetic rigid-disc drives for mini- and microcomputersystems, as well as high-end disc drives for workstations, minicomputers,and mainframes. Positioned to benefit from growing data storage demand.
Wal-Mart Stores (WMT-NYSE)
95 shares at 42 1/4
World's largest retailer. Plans to double the number of domestic supercentersin the next four years. Potential for significant market share gains inLatin America, Asia, and Europe.
Sources: Value Line Investment Survey, Dow Jones
Leslie Kane. Three pros pick their favorite stocks. Medical Economics 1999;21:163.