3Winning Portfolios

If you had $10,000 to invest, wherewould you put your money? We ask top money managers to share their strategies and picks.

a solid dividend. "Yield is important as a cushion," he says. "It tells you how strongly management feels about its ability to bring in the earnings and it acts as pressure, of sorts, on executives to run a business very well and keep disciplined even in hard times." Another bonus: stocks with sturdy dividends not only ride out market storms well, they prosper when the Federal Reserve cuts rates and investors look for a yield.

Randall Eley
Preference: Stocks 60%, Bonds 40%
Advice: Look for large stocks with low price- to-earnings multiples and solid dividends.

Eley’s Picks
It’s no surprise that Eley’s favorite stocks have low P/Es and yields that exceed the S&P’s 1.65%. His six stock picks:

  • Dow Chemical (NYSE: DOW) 13 P/E, 3.8% yield.
  • Philip Morris (NYSE: MO) 20 P/E, 3.7% yield.
  • General Motors (NYSE: GM) 15 P/E, 3.4% yield.
  • Chevron (NYSE: CHV) 21 P/E, 2.8% yield.
  • 3M (NYSE: MMM) 17 P/E and 2.6% yield.
  • Eastman Kodak (NYSE: EK) 67 P/E, 2.4% yield. Eley says Kodak looks like it’s turning around, and should lower its P/E to the 20 range in the next year or so.

Mark Lay
Preference: Stocks 50%, Bonds 50%.
Advice: It’s a good time to get into bonds.

Lay, like Eley, is a bit cautious on the stock market’s prospects for 1999. That’s not to say there won’t be good values in stocks, but overall, he says, the stock market probably will find it hard enough to muster a 10% gain for the year, compared to the 20%-30% increases posted from 1995 to 1997. "Typically I’d opt for 60% stocks and 40% bonds, but I’m less confident about equities over the next 12 months with global turmoil starting to affect things here, and consumer confidence falling stateside," says Lay.

Meanwhile, with the Federal Reserve cutting rates and inflation still dormant, things bode well for Lay’s specialty-bonds. He looks for rates to keep falling and foresees interest on the 30-year Treasury bond falling to 4%-4.5% over the next 12-18 months, compared with a current rate of 5.29%. Translated into an investment strategy, that means it’s a good time to bu
y bonds. And, if interest rates fall, as he predicts, bonds should appreciate in value.

Lay recommends a laddered bond portfolio and has several recommendations. He starts with a 30-year bond, the U.S. Treasury paying 6.125% due November 2027. It’s not only a solid holding for the long term, he says, but a good play on lower rates, one that should reap a capital gain should interest rates slide. Lay also likes the U.S. Treasury paying 6.625% for a 10- year bond, due May 2007, and for a shorter issue, he’d opt for the U.S. Treasury paying 6.375% due August 2002. Shorter bonds, he says, will undergo less volatility than longer issues should interest rates fluctuate.

You might also consider two other bond holdings. Lay says a U.S. Agency bond is a bet every

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