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Rise in labor costs will be `bad for stocks’

SHARE Rise in labor costs will be `bad for stocks’

The widely anticipated rise in labor costs spells trouble for stocks, says Bear Stearns' chief investment strategist Elizabeth Mackay. "Companies will be able to pass along some of their increased labor costs to consumers. That will boost inflation to 3.4 percent. This will be enough to push up long-term interest rates, which will have a negative effect on stocks."

- SSgA Small Cap Fund has produced 21.8 percent average annual gains over the past three years by using a value-oriented, computerized stock-selection program to beat the Russell 2000 small-stock index without assuming more risk. The fund looks for stocks that best combine low prices and strong earnings momentum based on independent projections. Recent favorites: CMAC Investment, Belden, CKE Restaurants, Dean Foods, Commercial Federal , National Data, Ross Stores.- Biotechnology is an increasing factor in both agriculture and animal health. "Last year's increased product revenues for agbiotech companies and the growing involvement of large agrichemical companies demonstrate that the sector's scientific potential is now being realized," says Agbiotech Stock Letter (P.O. Box 40460, Berkeley, Calif. 94704), which specializes in such stocks. "Yet stock valuations remain low due to the public's lack of awareness." ASL's favorite agbiotech stocks: Calgene, Consep, DNAP Holding, Ecogen, EcoScience, Embrex, Envirogen, Mycogen, Synbiotics.

- In looking for "ironclad" stocks that could weather the next downturn, Kiplinger's Personal Finance Magazine (1729 H St. N.W., Washington, D.C. 20006) constructed an extremely rigorous screen. It demanded: 1) yields of 2 percent or more; 2) dividends paid 10 consecutive years and rising more than the Standard & Poor's 500 dividend increase during that period; 3) S&P ratings of A-minus or better; 4) five-year total returns greater than the S&P 500; 5) outperformance of the S&P over the past three bear markets. Only nine stocks made the cut: American Home Products, Clorox, Kimberly-Clark, Procter & Gamble, St. Paul Cos., Schering-Plough, Sun Trust Banks, Warner Lambert, Winn-Dixie.

- Closed-end "junk" bond funds recently traded at an average 4 percent premium to net asset value (NAV). Meanwhile, closed-end investment-grade bond funds traded at an 8 percent discount to NAV. According to Mutual Funds magazine (2200 S.W. 10th St., Deerfield Beach, Fla. 33442-8799), this unusual situation means that investment-grade closed-ends were yield-ing as much as "junk" closed-ends, but with significantly less credit risk.

- Gold is in the doldrums, although many analysts expect inflation to pick up. If it does, Midas Gold Fund could be a significant beneficiary. Midas has produced 24.2 percent average total returns annually over the past five years, despite the stagnant market for the yellow metal. It has lately taken a large stake in some small exploration stocks with low market-cap-to-reserve ratios. These include: Armada Gold, Fairmile Gold, Glenmore Highlands, Golden Queen, Goldstake Exploration, Minorca Resources.

- More evidence that stocks with underpriced book values produce superior returns: According to Dreman Value Advisers in Jersey City, N.J., if you'd invested $10,000 in the 20 percent of stocks with the lowest book value ratio 25 years ago, you'd have $394,000 today. If you'd put it in the 20 percent of stocks with the highest book value ratios, you'd have just $92,000.