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Nasdaq not undervalued despite downturn

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With the Nasdaq down 80 percent since March 2000, the index must be undervalued, right? Not necessarily, says Smart Money magazine (1755 Broadway, New York, NY 10019). "The standard way to value companies is based on the sum of all the earnings they generate. The Nasdaq Composite's accumulated profits and losses since the second quarter of 1994 amounts to less than zero. If this keeps up, even paying just 21 percent of peak value looks like overpaying."

Neuberger Berman Genesis Fund has produced 13.4 percent average annual gains over the past decade by making the avoidance of market downturns its priority. When fully invested, it favors small companies with predictable earnings, low price/earnings ratios, strong cash flows, high returns on equity and low debt. It's currently closed to new investors. Among its favorite stocks: AptarGroup, Zebra Tech, Church & Dwight, Fair Isaac, Alberto Culver, Mentor, Henry Schein.

Home furnishings stocks outperformed the S&P 500 last year and should continue to do better than the general market throughout 2003, says Standard & Poor's Outlook (55 Water St., New York, NY 10041). "The home furnishings industry depends on the housing market, which has been strong because of low mortgage rates. We expect rates to remain relatively low. In addition, demand should continue to be helped by baby boomers entering their peak spending years." The Outlook's favorites in this group: Mohawk Industries, Leggett and Platt.

To uncover cheap overseas stocks with good prospects and staying power, Preferred International Value Fund's Peter Spano goes looking for those whose ratio of price to earnings, cash flow or book value is low compared with both those of other foreign companies and its own historical averages. It then zeroes in on those issues with good earnings growth and strong balance sheets. Four stocks that recently satisfied all these criteria: Accor (hotels, France), Pearson (publishing, UK), United Overseas Bank (banking, Singapore), Vodafone (cellular, UK).

Jittery investors seeking a safe haven from the stock market poured almost $100 billion into bond funds last year, helping drive Treasuries to 40-year highs. But Treasuries may not offer the security that investors think they do, cautions Money magazine. "The danger is that, if interest rates rise, Treasury prices will drop, and so will the value of the mutual funds that invest in them. Investors who think they've escaped the perils of the stock market could get badly burned."

Stable-value funds enter into contracts paying guaranteed rates of return and try to keep their value constant, observes Kiplinger's Personal Finance Magazine (1729 H St. NW, Washington, DC 20006). "If the market value of the investments underlying the contract drops below the price paid by the fund, the contract's issuer promises to make up the difference. Scudder PreservationPlus Income is a no-load stable-value fund requiring an initial investment of just $500. It returned 6 percent to 7 percent in each of its first three years."

Site of the Week: See www.hoovers.com/ipo/ for a free site that keeps track of initial public stock offerings, both past and upcoming. Data on aftermarket performance goes back to 1996. Scheduled pricings are listed for each of the next six weeks. Detailed company profiles and financials are available for a subscription fee.

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.