When the public isn't selling short (selling stock, hoping to buy it back cheaper later) while NYSE specialists are shorting avidly, it usually signals a market top, observes Market Logic newsletter (2200 S.W. 10th St., Deerfield Beach, FL 33442). "The recent 10-week ratio of public-to-specialist shorting is the lowest in five years. Caveat emptor."By focusing on stocks selling for at least 40 percent discounts to intrinsic value, especially those with strong cash flow and good sales compared to their competition, Longleaf Partners Small-Cap Fund has maintained the lowest risk score of any small-cap fund in the Value Line universe. Yet its 18.1 percent average annual gain over the past five years is still 30 percent higher than its peers. Recent favorite stocks: Promus Hotel, Gulf CDA Resources, Ametek, U.S. Industries, MONY Group, Perrigo.
Craig Weichmann of Morgan Keegan in Memphis has twice been The Wall Street Journal's all-star retail analyst. In 1998 his picks rose exactly 100 percent, 59 percentage points more than the S&P retail index. Weichmann specializes in value stocks selling well below their "visible" growth rates. Recent favorites: Consolidated Stores, French Fragrances, Saks.
Merrill Lynch believes the Japanese economy may have bottomed. Merrill recently tripled exposure to Japanese securities in its global funds from 5 percent to 15 percent. The firm is concentrating on Japanese stocks that could benefit from the recent acceleration of corporate restructurings and from steps by the Bank of Japan to combat inflation. Merrill recommends Japanese companies trading on U.S. exchanges, which includes Honda, Bank Tokyo-Mitsubishi, NEC, Kirin Beer and Nippon Telegraph and Telephone.
Robert Rodriguez and Tom Atteberry of FPA New Income Fund believe mortgage bonds are now the biggest bargain in the fixed-income market. "Eighty percent of the housing market has no real incentive to refinance at today's rates, so you don't have to worry about rapid repayments," says Rodriguez. "In return you can earn 1 percent to 1.5 percentage points above Treasuries."
The runaway money supply plus creeping inflation pressures plus the record trade deficit add up to big trouble for the U.S. dollar, predicts InvesTech Research (2472 Birch Glen, Whitefish, MT 59937). "This currency risk may increase dramatically once we enter a bear market for stocks. One of the easiest ways to take advantage of such a trend is through a foreign currency fund such as Franklin Templeton Hard Currency. Note, however, that it has a 2.25 percent load, so be sure you have a long-term commitment before buying."
Variable annuities are tax-deferred mutual funds. Sounds great, but unfortunately most variables have prohibitive expenses. In fact, says Bob Carlson's Retirement Watch newsletter (3700 Annandale Road, Annandale, VA 22003), investors should consider variables only if they've maxed out on all their other retirement-investing options, if they are investing for at least 10 years, and if they aren't in the top tax brackets. "And cut expenses to the bone. Don't buy any variable annuity that charges a load, and look for the lowest annual expenses and charges. Our favorite for keeping expenses low is Vanguard, with Franklin, Charles Schwab and T. Rowe Price close runners-up."
Investor's Notebook is a digest of investment opinion from the world's leading financial advisers. It does not recommend any specific investments, and no endorsement is implied or should be inferred. For more information, contact the individual firms cited.