In 1999, at the height of the stock market's irrational exuberance, Charles Allmon, the 81-year-old editor of Growth Stock Outlook newsletter (P.O. Box 15381, Chevy Chase, MD 20825) forecast 40 percent to 60 percent declines for the S&P 500, Wilshire 5000 and Dow industrial stock averages. What is Allmon predicting now that most of his fears have come true? More of the same. "It's going to take a long time for investors to regain their trust in corporate America," he says.
Perritt MicroCap Opportunities Fund usually invests in companies with market values below $300 million. If a big brokerage firm starts covering one of its holdings, manager Michael Corbett will consider selling it. During his nearly three years at the helm, the tiny $30 million fund has gained 15.3 percent annually with this stealth strategy. Largest holdings now: ICT Group, Healthcare Services Group, Rimage, Blue Rhino, Exactech, Finley Enterprises, Boston Acoustic.
Traditionally, analog has been a 10 percent growth business, and more stable than other parts of the semiconductor industry, notes California Technology Stock Letter (P.O. Box 308, Half Moon Bay, CA 94019). "The telecom crash dragged many analog companies down with it. But the rapid adoption of new features on digital systems is increasing analog content now, and a telecom rebound will accelerate growth toward the end of 2003. Marvell, National, ON, Micro Linear and Infineon are analog companies spending significant money on R&D but underappreciated on Wall Street."
The "ease-of-read" premium is the extra price investors are willing to pay for stocks with easy-to-understand businesses and financial reports. Kiplinger's Personal Finance Magazine (1729 H St. NW, Washington, DC 20006) recently recommended six such stocks whose earnings have risen for an average of 17 consecutive years without the aid of "extraordinary items." These stocks offer growth at a fair price, says Kiplinger's. Their PEG ratios (predicted earnings growth rates divided by price-to- earnings ratios) recently averaged 2, compared to 3 for the S&P 500: Alberto-Culver, Anheuser-Busch, Bed Bath & Beyond, Florida Rock Industries, Johnson & Johnson, Sysco.
Investors have been stampeding into bond funds, just as interest rates reach multiyear lows. If you must buy a bond fund now, stick to the basics, advises Annette Thau, author of "The Bond Book" (McGraw-Hill, $29.95). "Look for no-load funds with low expense ratios and no 12b-1 charges. Focus on funds that invest in high-quality bonds. The low-cost leader is Vanguard, with expense ratios between 18 and 30 basis points. T. Rowe Price and Fidelity also cap expenses for some funds at 50 basis points."
Stock-aversive investors have also been helping the price of gold, anticipating the return of inflation. Take the long and jaundiced view, advises David Wysco, chief economist of Standard & Poor's. "Gold's investment history is abysmal. The 1970s were the only decade in the last century when it beat anything."
Site of the Week: Go to ( www.global-investor.com) for a free site that provides a database of financial information for markets around the world. The ADR section contains complete profiles of all stocks trading as American Depositary Receipts on U.S. markets.
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.