The recession hasn't hurt the stock market. And a sluggish recovery may not hurt it either, according to SCI Economic Adviser (P.O. Box 3060, Cedar Rapids, IA 52406). "That's because corporate profits have held up remarkably well compared to previous recessions. There are two reasons for this. First, the current slowdown has not reduced profit margins. Second, profitability by foreign affiliates of domestic companies has been accelerating."
- The Kaufmann Fund was the top-performing growth fund from 1988 through 1990, rising 121.7 percent. In 1988, Kaufmann was the top fund in all categories, appreciating 58.6 percent. Kaufmann followed this performance with a 46.8 percent gain in 1989. Last year, Kaufmann declined 6.1 percent, which compares favorably with the NASDAQ Composite's 17.8 percent fall. Kaufmann specializes in profitable companies just beyond the venture stage, with new product lines and strong growth prospects. Recent favorites: T2 Medical, Employee Benefit Plans, Kinetic Concepts, Cabletron Systems, Cycare Systems, Continuum.- Two important factors favor a strong comeback for the depressed brokerage house stocks, says Philip Dubuque of Financial Strategic Financial Services Fund in Denver: falling overhead and rising volume. "Some brokers have reduced their payrolls 30 percent since 1987, and New York Stock Exchange volume is running 20 percent higher than last year," says Dubuque. His favorite brokerage stocks: A.G. Edwards, Merrill Lynch, Paine Webber.
- T.R. Winston MacIver & Co. (3048 Valley Road, Basking Ridge, NJ 07920) recently went looking for the best small companies in America in terms of profitability, liquidity, leverage and a reasonably priced stock. To do this it applied 50 separate financial ratios commonly used by lenders and investors to Forbes' latest list of the "200 Best Small Companies in America." The winners: Enclean Inc. (best all around); American Travellers, Tech Ops Sevcon (strongest recent trends); Banctec, Fidelity National Financial, Raymond James Financial, Zitel (best value).
- Municipal bond unit trusts - which hold a fixed number of bonds until maturity - are less risky than muni bond mutual funds. And if you hold your trust until maturity, your costs will be lower, too. That's because trust administrators don't actively manage their portfolios, so their annual fees average only 0.1 percent to 0.2 percent of assets. "The lower fees mean that unit investment trusts, if held to maturity, can outperform muni funds on a total-return basis," says Gabriele Hueglin & Cashman of New York.
- The price of gold hasn't reacted to international tensions in recent years. And it's unlikely to regain its safe-haven status soon, says Merrill Lynch precious-metals analyst Warren Myers. That's because big institutions have found a more convenient disaster hedge: currencies. "Trading in deutsche marks, Swiss francs or the dollar is easier than buying gold, which requires transportation, storage and handling. In this high-tech era it's easy to move billions from one currency to another."
- Cornell economist Richard Thaler and his associate Werner DeBondt recently studied 50 years of stock prices and found that companies that had significantly underperformed the market for three years outperformed the market by 20 percent over the next three years, while the high fliers of the past three years underperformed by 5 percent. The moral: Investors tend to overemphasize recent events.
Investor's Notebook reflects the opinions of professionals. It does not recommend any specific investments, and no endorsement is implied or should be inferred. For more information, contact the individual firms cited.