A Big Picture Portfolio

Comerica's Perry Cabean says trends do a lot to drive stocks upward

Wall Street likes a good story. In fact, many money managers say there’s a tale behind any stock that has climbed over a long period. Comerica Bank’s Perry Cabean says the trick is to identify those stories and jump in before a stock takes off. A money manager who helps supervise $18 billion in assets for the Detroit-based bank, Cabean works with 44 other managers to first figure out the big picture and then goes looking for good shares. “Our team focuses on five or so economic trends we feel will help drive good companies and good stocks over the next few years,” he says. “We have a long-term time horizon and we feel that good themes will help generate growth and good capital appreciation.”

Cabean says they first hone in on big changes in the economy. They then determine which companies are likely to benefit from those opportunities. After Cabean and his colleagues settle on themes, they comb the market for growth stocks they feel fit those themes and are worthy of notice.

To be sure, Cabean and colleagues apply some old-fashioned mathematics to pick stocks. One measure is by tracking a stock’s trading volume–the number of shares that changes hands on any given day. Cabean says stocks on a climb that report high volumes are quite possibly attracting big institutional investors, a sign that the “smart money” may be on to something big.

One theme Cabean likes is the new industrial revolution–a trend covering companies that mold today’s workplace. The Apollo Group (Nasdaq: APOL) is doing just that through its University of Phoenix subsidiary, an online college that provides correspondence courses on the Internet. Cabean says demand is booming and annual tuition increases of 10% will fatten the company’s bottom line.

Cabean is also bullish on companies that cater to an aging U.S. population. A grayer America, he says, is likely to be more health conscious, one reason he believes Tenet Healthcare (NYSE: THC) should shine. Cabean says the company is buying up hospitals and increasing average patient stays by including rehabilitation and psychiatric units in its hospitals.

The Comerica team thinks companies that provide good values to consumers are also a good bet. Avon Products (NYSE: AVP) is winning over U.S. customers with a good line of cosmetics and toiletries, but is also making strides abroad, particularly in Eastern Europe and Asia. Cabean expects Avon’s overseas sales to grow as much as 20% annually over the next few years. And he feels Avon’s U.S. sales could increase 7% annually over the next five years.

U.S. economic productivity is also an indicator Cabean favors. One company that plays to that theme is Pitney Bowes (NYSE: PBI), a maker of postal meters and a variety of office machinery. Pitney Bowes’ efforts to produce mail security products, particularly after the anthrax scares last fall, are intriguing.

Finally, longer-term, Cabean says the telecom industry has growth potential. Alltel (NYSE: AT), a wireless and wireline communications company, is serving rural areas that the likes of Verizon and SBC

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