Louis A. Holland is hunkering down. The 34-year money management veteran feels a volatile and overvalued stock market is in for even more pain. “Markets tend to go through three phases — love, hate, and indifference,” he notes. “Right now I think we’ve passed into the hate stage and could have some more to go through.”
Don’t think Holland has shunned stocks for good, though. He hasn’t. During the next few years, for instance, he expects the overall stock market to provide returns between 6% and 8% annually — good numbers, but rather modest compared to the 20% and 30% gains the market logged between 1995 and 1999.
As for today’s market, Holland, who is managing partner and CIO of Holland Capital Management L.P., has a good gauge on things. The Chicago-based portfolio manager has turned in good numbers for his Lou Holland Growth Fund (LHGFX), averaging an annual total return of 3.12% over the past five years as of Aug. 12. The Standard & Poor’s 500 index averaged 3.66% for the same period, but the fund managed to stay within the top 14% of all large-cap growth funds, according to Morningstar. But Holland’s fund had a rough ride through the first half of 2002; it was down 17%. (The S&P 500 index was down almost 20%.)
Even in the current market, Holland still focuses on finding good earnings growth, provided the stock is selling at a cheap price. To increase his success, he’s staying with stocks that could potentially boost earnings 12% to 15% over the next five years.
Holland’s first Private Screening pick is Republic Services (NYSE: RSG), a waste management company that he says is the leader in its industry. Since waste is picked up year-round, he feels the firm’s near 12% growth rate is a lock.
His second selection is Zebra Technologies (Nasdaq: ZBRA), a company that makes bar code scanners. Zebra is a pretty close fit for Holland’s current criteria: Its long-term growth rate hovers 17% a year, according to Zacks Investment Research, yet the stock is selling at no more than 22 times its projected 2002 earnings.
Holland likes two leisure stocks for the long-term. One is Carnival (NYSE: CCL), the well-known cruise operator, which fetches 15 times its current profits. Yet, according to Zacks, it should experience a profit growth spurt of 13% in the next year. Holland thinks Carnival’s name recognition is strong and it will do well once the economy heads into smoother waters. International Speedway (Nasdaq: ISCA), a small company that runs auto racing tracks, is Holland’s other leisure pick.. The popularity of NASCAR is a boon, says Holland, who likes International’s price. Shares of the company trade at 18 times profits, but Wall Street predicts the company will boost its projected earnings 17%.
Finally, Holland says that since an aging America is more savings and retirement conscious, financial institutions such as Goldman Sachs Group (NYSE: GS) should fare well. He says Goldman, which focuses on high net worth clientele, “is a preeminent investment banker and a huge