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No, it is not too late to buy stocks
Despite the impressive market moves since March, interest in stocks continues to broaden, meaning there is still room for this market to run. Here are 30 steady growers to get you started.
By Jon D. Markman
The world economy might be improving. Or it might be on the verge of ruin. The Iraq conflict might inhibit consumer confidence. Or maybe no one cares. Al Qaeda might be planning to blow up a U.S. city. Or maybe its watching Seinfeld re-runs. Auto unions might strike, soybean prices might explode, a hurricane might blow the Pentagon into Pennsylvania, the Chinese might take over every job in America and the Red Sox might actually have a shot at the post-season.
All things are possible, but for twice-burned investors fretful about whether to tippy-toe back into the surging stock market, only one thing is certain: No major bottom in financial history was ever easy to call at the time. Each was obscured by flaws that forced private investors to the sidelines to await one last piece of data that would make the future more clear.
Yet no such final, irrefutable evidence ever comes. Investing must be done without certainty -- right now and forever -- because reward only comes with risk. If you werent scared, it wouldnt be the right time. After all, the very best time to have invested this year was back in March when the world, at the onset of war, looked its bleakest. Some intrepid souls obviously did take advantage of those moments of total doubt, and made out handsomely. The rest of the world could only watch with wonder.
Its still a good time to jump in
Paul Desmond, president of institutional stock research firm Lowrys Reports in Florida, says this phenomenon occurs because there is not enough money to allow everyone to profit. And he notes that the phenomenon continues today, after six months of rally, as investors who failed to participate at the start now complain that valuations are too rich, and a crash is surely imminent, among other sorrows.
Desmonds research into 70 years of market bottoms, however, suggests that today is still not such a bad time for private investors to rekindle their interest in stocks. Demand among professionals for the shares of small- and medium-sized companies is increasingly robust and shows no sign of waning, his analysis shows. Meanwhile, current owners of those shares are more reluctant to part with them than ever. Selling pressure, Desmonds term for volume during down days, is at a five-year low. This combination of strong desire to buy and modest desire to sell is a recipe for continued rally, as only higher prices on the part of bidders will pry those shares loose.
Each of the nine different types of advance-decline lines that Desmond monitors rose to a new high last week, suggesting that interest in stocks is broadening. History shows that rallies become increasingly narrow, or selective, in the last four to six months of major market advances, turning the advance-decline lines negative. Thus, Desmond proposes, despite high valuations, it is too early to abandon this market advance. (The best place to view free advance-decline line charts is in the Market Breadth section of StockCharts.com's Market Summary page. Use the link at left to view the charts.)
30 picks for an uncertain world
If you have waited this long to dive into stocks, you are probably not the sort of braveheart who gets a thrill from volatility. So I am going to propose a list of stocks to get you restarted that are notable as much for their steadfastness as for their current strength. Investments must be somewhat risky, or they would not pay off. But, if Im not mistaken, most of these could go into childrens college education funds or personal retirement accounts without undue concern.
None are in the technology field, though most make good use of technology. None mine gold or other basic materials. All are innovative in their own ways, but none are going to get you many points on the cocktail party circuit if you try to explain their product or service.
What these 30 small- and mid-cap stocks do have in common are prices currently trading very close to five-year highs. But before that idea scares you off, consider that the single most distinguishing factor about these stocks is that virtually all of them recorded positive stock returns and fundamental business gains in each of the past five years -- through recession and broad-market boom, bust and boom echo. And the ones that did not were down in just one of those years, and by no more than 10%. Its worth noting that in each of the past five years, they also traded at five-year highs as their fundamental business idea resounded with both customers and investors; their gains arent just the result of expanding price-to-earnings multiples and tagging along with GDP growth.
Six are real estate investment trusts with rich dividend yields; three are oil and gas marketers; seven offer unique services to consumers, such as gaming, restaurants or newspapers; two provide branded consumer products, such as food flavorings or shampoo; and five make capital goods such as trucks and construction equipment. All have found ways, through clever marketing or internal management, to grow and prosper whether interest rates were rising or falling, whether the broad market was rising or falling, and whether investor interest in their industry groups was waxing or waning.
| 30 steady growers | | Company Name | 9/12 price | Market cap | Div. yield | P/E | Industry | YTD % chg. | | Stake Technology (STKL, news, msgs) | $9.04 | 391 MM | 0 | 69.5 | Diversified Machinery | 187.0 | | Career Education (CECO, news, msgs) | $47.96 | 4.7 B | 0 | 54.5 | Education Services | 139.8 | | Gilead Sciences (GILD, news, msgs) | $67.15 | 13.5 B | 0 | -- | Biotechnology | 97.5 | | Harman International (HAR, news, msgs) | $100.00 | 3.2 B | 0.1 | 32.3 | Electronic Equipment | 68.1 | | Donaldson (DCI, news, msgs) | $55.73 | 2.4 B | 0.7 | 26.4 | Pollution Controls | 54.8 | | SCP Pool (POOL, news, msgs) | $42.41 | 999 MM | 0 | 22.3 | Wholesale, Other | 45.2 | | Toro (TTC, news, msgs) | $46.00 | 1.1 B | 0.5 | 14.8 | Small Tools | 44.0 | | Penn National Gaming (PENN, news, msgs) | $22.74 | 899 MM | 0 | 19.9 | Gaming Activities | 43.4 | | Chelsea Property Group (CPG, news, msgs) | $46.90 | 2.1 B | 4.5 | 66.1 | REIT - Retail | 40.8 | | Applebee's International (APPB, news, msgs) | $32.40 | 1.8 B | 0.2 | 21.5 | Restaurants | 39.7 | | R.H. Donnelley (RHD, news, msgs) | $39.80 | 1.2 B | 0 | -- | Research Services | 35.8 | | Corporate Office Properties (OFC, news, msgs) | $18.59 | 546 MM | 4.7 | 88.5 | REIT - Office | 32.5 | | Equity One (EQY, news, msgs) | $17.53 | 1.1 B | 6.4 | 16.9 | REIT - Residential | 31.3 | | Oshkosh Truck (OSK, news, msgs) | $39.55 | 1.3 B | 0.6 | 20.5 | Trucks & Other Vehicles | 28.6 | | Patterson Dental (PDCO, news, msgs) | $55.42 | 3.7 B | 0 | 31.5 | Medical Equipment | 26.7 | | Suncor Energy (SU, news, msgs) | $19.55 | 8.7 B | 0.7 | 15.2 | Oil & Gas | 24.8 | | C.H. Robinson Worldwide (CHRW, news, msgs) | $38.71 | 3.2 B | 0.8 | 31.5 | Air Freight Services | 24.1 | | Occidental Petroleum (OXY, news, msgs) | $35.26 | 13.4 B | 2.9 | 9 | Independent Oil & Gas | 23.9 | | Evergreen Resources (EVG, news, msgs) | $54.94 | 1.1 B | 0 | 50.9 | Independent Oil & Gas | 22.5 | | Weingarten Realty Investors (WRI, news, msgs) | $44.32 | 2.3 B | 5.3 | 21.7 | REIT - Retail | 20.2 | | Pan Pacific Retail Properties (PNP, news, msgs) | $42.85 | 1.7 B | 4.7 | 16.2 | REIT - Retail | 17.3 | | McCormick (MKC, news, msgs) | $27.00 | 418 MM | 1.8 | 20.5 | Processed Goods | 16.4 | | American Standard (ASD, news, msgs) | $82.68 | 5.9 B | 0 | 15.7 | Building Materials | 16.2 | | Scotts (SMG, news, msgs) | $56.34 | 1.7 B | 0 | 20.2 | Agricultural Chemicals | 14.9 | | Equitable Resources (EQT, news, msgs) | $40.22 | 2.5 B | 3 | 15.4 | Gas Utilities | 14.8 | | SL Green Realty (SLG, news, msgs) | $36.19 | 1.2 B | 5.1 | 14 | Property Management | 14.5 | | E.W. Scripps (SSP, news, msgs) | $87.61 | 7.1 B | 0.7 | 29.6 | Publishing-Newspapers | 13.9 | | Alberto-Culver (ACV, news, msgs) | $57.30 | 1.8 B | 0.7 | 22 | Personal Products | 13.7 | | Regency Centers (REG, news, msgs) | $35.96 | 2.1 B | 5.8 | 20.4 | REIT - Retail | 11.0 | | Charter Municipal Mortgage Acceptance (CHC, news, msgs) | $18.85 | 778 MM | 7.4 | 14.3 | Mortgage Investment | 8.5 |
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Take Oshkosh Truck (OSK, news, msgs), for example. Shares have advanced about 30% this year as demand for its specialty -- military, construction, long-haul and emergency vehicles -- has improved in line with expectations for the broad economy. So what, you might say, a lot of companies have seen that or better. Whats valuable to observe in this case is that Oshkosh shares pulled the very rare trick of double-digit gains in each of the past five years: 1999 (34%), 2000 (51%), 2001 (11.6%), 2002 (27%) and 2003 (29%). The company has grown on a fundamental level every one of those years at about a 20% clip, yet its price-to-earnings multiple is well within reason at around 20. Institutions own only about 17% of the 1.2-billion-market-cap company, so there is plenty of room for more buying among public funds.
Or how about Graco (GGG, news, msgs). The Company makes equipment to move, measure, mix, dispense and spray a variety of fluids for customers in the industrial, automotive, contractor and lubrication-equipment industries. Pretty dull. The P/E multiple of 21 is a bit expensive for a company growing at 11% to 15%, but investors always pay up for consistent results without surprises. This stock rose 23% in 1999, 17% in 2000, 43% in 2001, 11% last year and is up 35% in 2003 -- again, a relatively rare phenomenon.
Two names that are a bit more interesting:- Harmon International (HAR, news, msgs). This company is one of the few American companies remaining in the home and auto hi-fi business. It set sales and earnings records in its latest fiscal year and has made a lot of headway in innovating infotainment systems for high-end auto makers Mercedes-Benz, BMW, Porsche and Audi. The stock was up 47% in 1999, 30% in 2000, 23% in 2001, 32% in 2002 and is up 68% in 2003.
- Gilead Sciences (GILD, news, msgs). This is one of the few biotech companies that has risen well beyond the development stage and has a shot at rivaling giant Amgen (AMGN, news, msgs) for industry leadership. It discovers and develops therapies for infectious diseases, such as HIV. It was up 32% in 1999, 53% in 2000, 58% in 2001, 3.4% last year and is up 97% this year.
All of these companies produce well-branded things or services for which demand is relatively non-cyclical and for which margins are relatively robust. They mostly had a single good idea, and do it over and over again in more places. Chelsea Property Group (CPG, news, msgs) is the worlds largest owner and operator of high-end outlet malls. If youve ever been to one, you realize that they are busy, attractive, cash-flow-generating machines. It would probably take a pretty stupid move by management, or an economic depression, to knock this outfit off its rails. Shares fell 9% in 1999, but rose 35% in 2000, 42% in 2001, 44% in 2002 and 44% in 2003. The dividend yield is 4.5%.
Ill track these names for the next few years and let you know how it goes. Meanwhile, send me suggestion of stocks you think deserve to be on the list -- shares trading near five-year highs; up in at least four of the past five calendar years and no one-year decline greater than 10%, with a minimum 100,000 shares traded daily -- and Ill publish in a future column.
Fine Print
If growth is not your game for this part of the market cycle, then click back to two of my last three columns, where I proposed ways to approach value stocks instead: Here and here. . . . Here is the basic screen that I used to start looking for the names. Of course, there was a lot more research required after that. . . . Learn more about Chelsea Property Groups high-end outlet malls here. . . . Harmon International was on most of our top-ranked StockScouter lists back in 2001 and 2002, and has continually done the system proud. Some of the companys best-known brands are Infinity speakers, Harman/Kardon and JBL. Visit this page to learn more. . . . Oshkosh builds an amazing variety of truck bodies; the diversity partly accounts for the company's success. Learn more here.
Jon D. Markman is senior investment strategist and portfolio manager at Pinnacle Investment Advisors. While he cannot provide personalized investment advice or recommendations, he welcomes column critiques and comments at jdm@oddpost.com. At the time of publication, he had no positions in stocks mentioned in this column.
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