of 17% and a 4% yield, it’s still a cheap stock selling at about 13 times versus the market that is selling at 19% or almost 20%. I think the long-term growth rate for Philip Morris is 15%-plus. For the first time this year, tobacco operations will contribute more than domestic, which reduces a great deal of the litigation risk that concerns investors.
BE: Let’s now wrap up with specific investment advice.
SELF: I’d advise your readers to use the fixed-income side to anchor a portfolio with conservative investments. Current yields are attractive. The strategy here is to buy them in a laddered structure. Buy Treasury bonds due to mature every year from two years to five years. If you have $20,000, put $5,000 in two- three-, four- and five-year Treasury bonds. As the first bond m
atures, you go out and buy another with the same maturity so that you are constantly rebuilding the ladder. That way, if interest rates go up, you are able to take advantage by buying the longer securities. If interest rates go down, you still have four, five years or so on some of the older, higher yield bonds. If you are in the 31% or above tax bracket, you could follow the same procedure with municipal bonds, sticking to Triple A rated munies. If
you are under a 31% tax bracket or you are investing for an IRA or a taxadvantaged account, Treasuries make more sense. If you have 10 years or more, or you have some specific goal that you are trying to save for, or if you are in a relatively low tax bracket, Treasury strips look attractive. These are zero coupon Treasury securities that they make out of Treasury notes and bonds. Right now, 10year strips are at about the 6.6%, and I don’t think it’s that likely that we are going to see inflation anywhere close to that over a whole 10-year period.
BE: You talked about Treasuries; what about regular savings bonds?
SELF: Treasuries offer a better yield. All you need for the two- and three year Treasury notes is a $5,000 minimum. For five- and 10-year securities, you could even buy them for as low as $1,000. If you don’t have that much, start with the Double E series Treasury.
GOODWIN: In the Vista Fund, we like Parametric Technology, a leader in mechanical computer-aided design. They provide software to engineers who are doing design for Fortune 500 companies. In 1997, the company is looking to get a better foothold in the automotive market, which IBM currently dominates. The company is growing earnings at a 30%-plus clip. TJX, in terms of the statistics, is at $39.88, a price that is 16.5 times its 1997 earnings. Washington Mutual, trading at $51.25 a share, is a 1996 holding. Our analysts feel that this is really the best run Northwestern bank. They quadrupled their size in the last nine years and have a very strong beachhead in California, which is turning around economically. Its P/E is