Investing in '99 Featured

10:01am EDT July 22, 2002

You don't have to be a prophet or an investment guru to understand the ups and downs of the stock market. All you have to remember is what your mother said in 1990, when the market fell 21 percent in 86 days.

Mamma said there'd be days like this. She didn't cave in and cash out then. And despite the recent volatility, the Wall Street consensus is that neither should we.

But how do you deal with all the uncertainty when it comes to protecting the employees' 401(k) or pension plan, or, for that matter, your own retirement funds?

We asked some of Northeast Ohio's best-known investors-folks who do this sort of thing for a living. What follows are their thoughts and strategies. Now mind you, their ever-vigilant and overzealous compliance departments would emphasize that none of what follows is actual investment advice, and that nobody can accurately predict the future of financial markets.

Even our own lawyers are begging that we refrain from making any recommendations on what to do with your money. So be it.

But if you sit down with a professional investment adviser and a bottle of good scotch, you'll hear what this breed really thinks of the compliance department.


David Sommer, Vice President and Portfolio Manager
Private Client Group, National City Bank, Cleveland

Who is he?
Part of a team that manages more than $27 billion in client assets.

Bull or bear?
Stock market model suggests a weaker market, but he doesn't use the word "bear." Expects economic growth in '99' to be in the 1-2 percent range.

Where to set your sights
High quality, growth-oriented companies that show consistent earnings. Consider increasing weightings in defensive sectors such as health care (pharmaceuticals) and consumer staples (food and beverage companies).

How to sleep at night
Take a cautious approach. Use bonds as a diversification tool, to generate current income and reduce portfolio volatility. Add oversold stocks of high-growth companies. Diversify with large, medium and small companies, with a pinch of overseas investment.

The place to be
Financial services: Believes regional banks, life insurance companies and diversified property and casualty insurance companies will get a boost in '99. Interest-rate spread-the difference between what banks pay on deposits and charge for loans-will grow. Very strategic. Very profitable.
Consumer staples: No matter what, people need food, beverage and medicine. Add to that an aging population, and they'll need even more of the latter.
Technology: Prices remain flat, so corporate earnings will depend on still more technology-driven efficiency.

Contenders
Financial services: StarBanc, American International Group and Fannie Mae.
Consumer staples/health care: Coca-Cola and McDonalds, Abbott Labs, Merck and Pfizer.
Technology: Compaq and Cisco Systems.

Proceed with caution
Transportation: Airline, trucking and rail service are all volatile and don't show consistent earnings. Commodities, too, are risky when the economy is sluggish. Same for utilities; you have to ask whether the after-tax yield is high enough to justify the risk.

The last word
Before buying in, beware of investing in companies with a high degree of earnings volatility.


Dennis Amato, Chief Investment Officer
Maxus Investments, Cleveland

Who is he?
Has 30 years of investment experience managing pension, profit sharing, institutional and individual accounts. For the past 15 years, the "Ohio" portfolio under his management has exceeded the S&P 500 and broader market indices such as the NASDAQ composite.

Bull or bear?
Bullish, expecting '99 to be a lot better than where we've been. Most bear markets last six to 12 months, so look for spring to bring a breath of fresh air.

Where to set your sights
Small cap companies lost more ground during the downturn, so their potential for consistent growth is now greater.

How to sleep at night
Set a firm foundation for your portfolio with balanced diversification in bonds and equities. Scrutinize for fundamental values. Don't place too heavy a bet in any one area. Go for consistency and don't get carried away by excessive growth projections.

The place to be
Industries to watch will be those under the most pressure in the past. No particular segment stands out as exceptional at this point. Just look for the high performing companies. Period.

Rising stars
Electronic commerce is a rapidly expanding area and will continue to grow.

Proceed with caution
Back off Internet stocks and others that sell at a hundred times earnings. A stock that's highly overvalued relative to earnings will probably not grow enough to justify the high price.

The last word
Stay with high quality companies. Watch the quality of the balance sheet and monitor the prices you pay.


John Patrick Lee, Investment Consultant
McDonald & Co. Securities Inc., Cleveland

Who is he?
Joined McD & Co. in '95' and specializes in retirement plan consulting, planning and portfolio management. Was formerly an account executive with Dean Witter.

Bull or bear?
Neither, because consensus earnings estimates for '99 are too high. Earnings next year should benefit, going against easy comparisons. The Fed has plenty of room to lower interest rates. Look for low inflation and moderate economic growth.

Where to set your sights
Be skeptical of "new paradigm" investment strategies. Investors who chase hot investment styles and fads are inevitably disappointed with returns.

How to sleep at night
Despite the recent decline in equity markets, don't fret about a total collapse in equities. Recession isn't in the forecast and the inflation outlook remains benign.

The place to be
Food and drug retailers, pharmaceutical companies, food companies and value-added technology firms.

Contenders
Kroger, Safeway, Bristol Myers, Merck, StarBanc, Comerica, Progressive, MBNA, Phillips Electronics.

Rising stars
Companies that are defensive in nature, provide value-added goods or services and don't compete mainly on price.

Proceed with caution
Commodity based industries, such as steels, chemicals and papers. One badly beaten area is interest rate sensitive stocks-banks, insurance companies, brokerage and diversified financial stocks.

The last word
Be honest about the risk you're willing to assume.


Caveat: These opinions are those of the individuals surveyed for this article. Don't rush out and make changes to your portfolio based on these picks. What looks good today isn't necessarily the pick of the week tomorrow. Consult your investment adviser and tax specialist. And if you still lose a fortune, don't blame us.