… And What For An Encore?

Is the stampede still on, or is the bull market soon to be corralled?

last week, when Clinton made comments on Medicare reform.

JACKSON: We have a pretty negative view in general of HMOs. At some point, these guys become part of the problem rather than the cure. Before they were able to say they could provide better health care at less of a price. That’s a tougher argument now. Most folks would agree that managed care does actually cut costs, but not as much as they used to. As far as the aging of America goes, I believe Service Corp. is a good company to own. It’s an operator of funeral homes and owner of cemeteries. It’s morbid, but long term; they’ll continue to grow from an aging population, and also through acquisitions within the U.S. and abroad. These guys are taking their business model globally to several European countries.

FRAZIER: Regional banks have done extremely well. The John Hancock Regional Bankshares Fund has been one of the best performers around. Consolidation has brought the number of banks in the U.S. from 17,000 to 12,000. By 2010, we’ll probably be down to about the 4,000-5,000 range. The fund was up over 30% last year and has a 10-year average return of right around 20%.

JACKSON: A spicier theme in the medical area is Medtronic, a leading manufacturer of pacemakers. The demand is there, since heart disease is a problem for 50- to 55-year-olds. The company’s long-term earnings growth rate IS estimated at 20%-25%, but we think it could be higher. The stock is a bit pricey, but I think the long-term story is very much intact.

BE: Are there other things that people are concentrating on right now?

JACKSON: One company we like is AES Corp., which builds power generation plants worldwide. The PIE on the stock is high but it could post good long-term earnings growth.

BE: What about technology?

GOODWIN: The sectors that outperformed the market last year were tech, financials, capital goods in industry and then utilities and communication services, specifically telephone and cable companies, underperformed the S&P dramatically. For the first half of 1997, you could still see good performance in some of the semiconductors and components companies. Another thing that helps technology stocks is the fact that corporations still have a large percentage of PCs–something like two-thirds of the corporate base–that run on 486 chips. They’ll be busy upgrading to pentium machines, which should help semiconductor makers. We also see that all the multimedia applications are increasing the need for storage. So there is an opportunity to see continued appreciation in storage and PC peripherals.
I’m really enthusiastic about Cisco, which we own in the Putnam Investors Fund; it has found that clients want an end-to-end solution. We hear from some competitors and suppliers that Cisco wins the business now because of that. They are the safe choice, just as IBM use to be.

FRAZIER: We like Intel for similar reasons. We have a two-year target of $200 a share on Intel and our analyst is still recommending it at $140. A little over a year

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