Last year, Personal Finance newsletter's annual review of "must-avoid" investments warned its readers to steer clear of high-flying health-care stocks (they eventually crashed), high-load mutual funds and short-term bonds (their returns proved mediocre), and unstable banks and insurance companies (many are now bankrupt or close to it).
Personal Finance's annual dissection of avoidable investments has become a highlight of the investment-advisory calendar. And a very profitable one, too, for those who've heeded its warnings. Since 1990, it's helped readers avoid many of the major disasters on both Wall Street and Main Street.So what's the worst the investment world has to offer in 1993? Here's Personal Finance's summary:
OVERPRICED STOCKS. Last year, P.F.'s list of overvalued equities declined 11.8 percent, despite a 10 percent gain for the general market. This year's list is "even more unsavory," says the newsletter, "with rock-bottom dividend yields and astronomical price/earnings ratios." The 11 pariahs: American Power Conversion, Cabletron Systems, Cisco Systems, Electronic Arts, IVAX, Marvel Entertainment, Microsoft, Mylan Labs, Novell, Parametric Technology, Synoptics.
Personal Finance's second list of overpriced stocks consists of 24 companies with price-to-sales ratios a stunning 3.5 times higher than the average stock in the S&P 500 despite their decelerating profit growth rates. Some of America's biggest brand-name growth stocks appear on this "must-avoid" list: Coca-Cola, Colgate-Palmolive, Disney, DSC Communications, Franklin Resources, Gillette, Home Depot, International Game Technology, Jackpot Enterprises, Justin Industries, Kansas City Southern, Lawter International, Liberty Bancorp, Molex, Thomas Nelson, Pharmaceutical Resources, Premier Industrial, Rollins, Southwest Air, State Street Boston, Tandycrafts, Tootsie Roll, United Asset Management, Wm. Wrigley.
MUTUAL FUNDS. Personal Finance also found 10 funds worthy of inclusion in its annual "Hall of Shame."
"Fully half actually managed to lose money last year," observes the newsletter. "Adding insult to injury, most also impose massive sales charges on new investors. And all are extremely vulnerable to a market decline because of their high valuations, low cash positions and historically poor records in bear markets." The 10 "avoidables": Bull & Bear Special Equities, Flag Investors Emerging Growth, Keystone Custodian K-2, MFS Lifetime Managed Sector Analysis B, Shearson Special Equitites B, Transamerica Capital Appreciation, United Vanguard, Value Line Special Situations.
Stocks and stock funds aren't the only overvalued sectors in the domestic markets, however, says Personal Finance.
BONDS. "The most overpriced bond investments are the high-yield closed-end funds. These funds trade like stocks on the major exchanges and can therefore trade above or below the actual value of their assets. Investors are currently paying huge premiums to purchase these funds, despite the fact that the bonds they hold are risky."
Here's P.F.'s list of "bad-news bond" funds. Cigna High Income, CNA Income Shares, 1838 Bond Debenture, Fortis/AMEV Securities, Hatteras Income, High-Yield Income, Hyperion Total Return, Kemper High Income Trust, Montgomery Street Income, Zenix Income.
(Personal Finance, 1101 King St., Suite 400, Alexandria, Va. 22314; semi-monthly, $118 annually.)