How To Survive In A Volatile Stock Market

Until the market slowed, a bang-up start to 1998 had investors eager for more. Our experts map out what to expect now.

population saving more and planning for things like retirement and their kids’ education bodes well, too. Higher healthcare costs are also spurring the insurance industry. We think companies like Citicorp (NYSE: CII) and American Express (NYSE: AXP) are part of the new wave of financial companies that should benefit.

The aging of America also makes the health-care sector look good. Pharmaceutical, HMO and biotech companies should benefit going forward.

Technology remains intriguing, too. It’s driving the world going forward, but at the same time, it’s been a very volatile sector. In this sector, we like the high-quality names longer term, which would really be Cisco Systems (Nasdaq: CSCO), Lucent Technologies (NYSE: LUC), Xerox (NYSE: XRX) and Microsoft (NYSE: MSFT).

ELEY: We’re placing our biggest bets on energy right now, for two reasons. First, commodities prices are already down sharply. We think that oil prices are reaching a bottom. Higher oil prices mean higher profits for oil companies. In addition, the big refining companies like Exxon (NYSE: XON), Mobil (NYSE: MOB) and Chevron (NYSE: CHV) have had to be extremely competitive at a time when a lot of other companies have been able to lighten up a bit. Exxon has been restructuring the last three years and constantly lowering costs. Therefore, the moment oil prices tick up, these energy companies are actually going to see their earnings jump quite nicely.

We also like basic materials and capital goods, the companies that make the basic products on which everything else is built. You’re talking about companies like Dow Chemical (NYSE: DOW), International Paper (NYSE: IP) and 3M (NYSE: MMM). These are companies that are profitable but have already taken something of a hit recently and are cheap.

ST. CLAIRE SIMMONS: I’m bullish on bonds. For one, they have a place in everyone’s portfolio, especially if you subscribe to the old rule of thumb that you buy stocks for growth, while you buy bonds for safety, security, principal and stream of income. For instance, it’s a good time to look at municipal bonds. Currently, their yield is 90% of Treasuries, which is outstanding. And factoring in their tax-free nature, they look like a good bet.

Finally, I think this is a great time to teach our children how to save and invest. One way for them to learn about the principles of investing is to get into one of the mutual funds that caters to kids (see “Investing as Child’s Play,” Moneywise, October 1998). Another smart move is with zero coupon bonds, which don’t yield interest directly to you, but instead accrue value over time.

As of July 7, 1998, the Treasury zero coupon bond maturing on March 15, 2018, requires a $310 investment, a gift you can give a child. In 2018, that same investment will be worth $1,000.

Dail St. Claire Simmons, a principal at Utendahl Capital Management L.P., 212-797-2688 has a message for you: even as the market roars on, don’t forget bonds. Bonds provide a great way to preserve wealth, albeit with some

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