… And What For An Encore?

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

ago, you couldn’t give the stock away. Now, it’s at $147 and everyone has to own it.

WILLIAMS: It’s difficult to bet against the technology bellwethers because of their dominance. You look at Microsoft in software. You might even call them predatory because they are constantly fighting with regulators. I think they are so aggressive that it’s really hard to bid against them.

JACKSON: I would play a little devil’s advocate on technology. We’ve had very exciting times but it’s difficult to make calls in the sector. One has to be very long-term oriented. We think the best strategy is to focus on quality management and products that you believe in, because technology changes so rapidly.

BE: We’ve talked about this being a stock-picker’s market. What are some of the criteria you’re using now?

GOODWIN: Well, in Vista, we have a minimum forward five-year earning growth rate of 12%. Then we look at earnings revisions and opportunities for earnings surprises. One is probably not enough to help a stock look better, but if several analysts are raising earnings estimates, we’re interested. We do pay attention to price/sales ratios. And in each of these cases, we’re looking at companies in the top 20%. Then we go out and talk to management and visit companies.

JACKSON: We like to focus in on a company’s price/earnings ratio to growth rates, sector by sector. We simply look at a series of earnings expectations, and also trailing earnings numbers because the P/E is really a snapshot at one point in time and we want a smoother number. The growth rate we look at is what’s expected long term. We focus in on earnings surprises because we think companies that surprise on the upside or beat the street continue to do so. There are three things you look at: direction, duration and magnitude. Is the direction positive? Clearly, that is the definition of a positive
surprise. Is the duration long enough? Thirdly, magnitude–how big of a surprise was it and what were the factors that contributed to it? Are they cutting costs? Are they poorly run or an inefficient company where there is more opportunity to cut costs to make these guys more competitive?

BE: What sectors are you buying into right now?

GOODWIN: Vista remains overweighed to some extent in technology. We moved away from some software and networking stocks that had posted triple-digit gains last year and moved into some of the semiconductor
and component names that I mentioned before.
While department stores haven’t been doing well at all, one name we still like within the retail area is TJX, which owns the TJ Maxx and Marshalls stores. TJX is in the off-price category and benefits because there has been a strife in society away from the luxury end of retail toward value.

JACKSON: A similar name we like is Consolidated Stores, which is a niche opportunity in the off-price area. One name we like is Philip Morris, which we hold but not in the socially conscious funds. Despite having very exciting earnings-growth prospects

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