Forecast ’99

What are the best financial moves to make this year? Here's a look at key investments to build wealth while buffering market bumps.

which does most of its business domestically. "My favorite companies in that field are Pfizer, Schering-Plough and Warner-Lam-bert." Shote concurs, calling Schering-Plough the best company in this sector.

Another domestic play: buying stock in big retailers. "I recommend Wal-Mart and Home Depot," says Fields. "Wal-Mart’s profit margins likely will be helped by falling prices on the merchandise it imports from Asia." Home Depot, also mentioned by Shote, stands to gain from low mortgage rates. "People will be buying more houses," Shote says, "so they’ll be buying more things from Home Depot." Shote adds the Gap to the list of retailers worth buying, saying that it’s outstanding in terms of earnings and the stock’s relative strength. "The Gap has been quick to move from jeans to khakis, which are in demand now."

Shote and Fields also agree on Lucent Technologies, a high-tech leader. "Lucent has been gaining market share from its competition in telecommunications equipment," says Fields, who adds that he’s upbeat on IBM, which has managed its international exposure well.

Another advocate of large caps is Joe Haywood, a financial planner with AFP Group in Los Angeles. "Consumer goods companies should hold up if there’s a slowdown: the Coca-Colas of the world likely will outperform a stagnant market." Haywood also favors stocks that pay substantial dividends, saying they’ll likely attract investors in 1999, and dividend-paying stocks generally are large caps.

Small-cap stocks. Not everyone is predicting the continued leadership of large caps; Peace sees the blue chips diminishing in importance. &quot
;The market might turn up later in the year and, if so, it probably will be the small caps and mid caps leading the rally," says Peace. "The values are better there." He’s also upbeat about regional banking stocks such as BancOne. Fields also mentions BancOne as a top pick among regional banks.

Creuzot says that the so-called "flight to quality" that dominated financial markets in 1998 was irrational. "Why should investors abandon fast-growing small and medium-size companies to pay 20 or 30 times earnings for large companies that are growing only 6% or 7% per year?" she asks. "The small caps and mid caps have been beaten down so much that they offer considerable value now."

Long-term, Creuzot says, small-cap stocks have outperformed large caps. "Numbers from Ibbotson Associates, a Chicago research firm, bear this out." It’s worth noting that the last serious bear market occurred in 1990; from 1991 through 1993, small caps posted annual returns of 29.2%, vs. 15.6% for large caps, according to Ibbotson.

Another big source of interest and investment is the Internet. It will continue to grow exponentially and investors will continue to make money there, says Fields. "America Online and Yahoo are both high-quality companies," he says. "Nevertheless, this is a highly volatile area so investors should spread their money over several Internet companies to reduce risk."

Among lesser-known companies, Haywood favors mortgage lenders such as Countrywide, Aames Financial and Beneficial. "With mortgage

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