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Will oil prices fuel recession?

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Since World War II, all major oil spikes but one have brought on a recession, observes Mark Zandi, chief economist at Economy.com. The reason: Each sustained $10 increase in oil prices shaves almost a percentage point off growth. Current forecasts of an increase of 4 percent or more in gross domestic product assume oil at $45. A higher price, Zandi believes, means slower growth, which could lead to lower stock prices.

Columbia Acorn International Fund, which has produced 16.18 percent average annual gains over the past three years, uses bottom-up analysis to uncover foreign small- and midcap stocks with strong fundamentals, positive cash flows, adept managements and dominant industry positions. Recent portfolio additions: Exel (United Kingdom), IAWS (Ireland), SES Global (France), Kinross Gold (Canada), Global Bio-Chem Technology (China), ComfortDelGro (Singapore).

Contract manufacturers make many of the products sold by well-known high-tech companies. But unlike many of their customers who have disappeared, the major contract manufacturers are still around, and their financial results are showing signs of improvement, notes The Turnaround Letter (TL) (225 Friend St., Boston, MA 02114). "In addition, they are well-positioned to rebound sharply when the technology sector does eventually recover." TL's favorite contracting stocks: Celestica, Flextronics, Jabil Circuit, Sanmina-SCI, Selectron.

The American Association of Individual Investors (AAII) (625 N. Michigan Ave., Chicago, Ill 60611) recently went looking for stocks that had increased their earnings at least 10 percent in each of the past five years and had also increased both their sales and earnings at least 10 percent in the latest quarter compared to the same quarter last year. Among AAII's "stable-earner stocks," five had raised their earnings more than 25 percent annually in each of the past five years yet still sold for single-digit price-earnings ratios: DR Horton, M/I Homes, Beazer Homes, Centex, Pulte Homes.

Long-term bonds have higher yields than shorter-maturity debt. There's a reason for that, says Money magazine. "Right now the higher rates paid on bonds that mature in 10 years or more don't adequately reward holders for the risk of insurgent inflation. So think about shifting money into short-term bond funds like Vanguard Short-Term Bond Index, which recently yielded around 3 percent and has super-low expenses."

Most general stock funds have been indifferent performers over the past five years. But many sector funds, which specialize in specific industries or market areas, have produced exceptional returns. Here are the best-performing sector funds from 2000 through 2004, according to Lipper Analytical: CGM Realty (29.2 percent average annual gain), FBR Small Cap Financial (26 percent), US Global Investors' Global Resources (24 percent), USAA Precious Metals (23.3 percent), RS Global Natural Resources (23.1 percent).

Site of the Week: Check www.clearstation.com for a free site offering stock charting and technical analysis. The site provides an indication of up/down trends on charts and has a useful collection of technical-analysis education materials covering chart basics, technical indicators and chart patterns. A technical events area breaks out stocks based on trending, timing, price action, market activity and continuation trend.

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.