Looking Toward Expansion

Barbara Bowles of The Kenwood Group is positioning her portfolio for growth

There are indications that the current administration’s economic policies have finally begun to lift the economy, at least for the short-term. One of the most severe bear markets ever is starting to fade into a memory.

Chicago money manager Barbara L. Bowles has taken notice and, after surveying a host of factors, she expects the economy to be on the upswing. A 25-year veteran of the financial industry, Bowles says the economy’s pulse, as measured by gross domestic product or GDP, could grow as much as 3.8% in 2004. Therefore, Bowles expects companies to become more active this year. Corporations will likely boost production and hire more workers. And as a result, Bowles is looking for stocks in industries critical to expansion, such as technology and materials, to have a good 2004.

Bowles is the founder and CEO of institutional money management firm The Kenwood Group, which currently supervises some $260 million in institutional and pension funds for clients such as Abbott Laboratories and Mitsubishi Motors. Until recently, her company managed the Kenwood Growth and Income Fund (KNWDX), which has posted very solid numbers. As of mid-November, the mutual fund posted a 26.8% total return — almost six percentage points above the Standard & Poor’s 500 Index. At the end of the third quarter of 2003, the Kenwood fund had logged an average 6% annual total return over the previous five years, compared to 1% for the S&P 500. This year, Bowles merged the assets of the Kenwood fund with another black-owned fund, the Profit Value Fund (PVALX), which is run by Eugene Profit.

Bowles invests in companies with a market cap of $400 million to $8 billion that may have had a recent setback but still have strong prospects going forward. She likes holdings that are earmarked to grow profits or earnings at about 8% a year, on par with the overall market. Bowles usually opts for companies that are selling at a price to earnings (P/E) multiple that is in line with, or a bit less than, their industry peers. Finally, she checks to make sure candidates are not overly strapped with debt.

For her private screening portfolio, Bowles selected five stocks in a variety of industries. She says the accounting and background screening firm, Kroll Inc. (Nasdaq: KROL), is an amalgam of businesses that are worth more separately than the company’s recent stock price. She says Kroll generates as much as $1.5 million in free cash flow and is on course for solid profit growth in years ahead.

Technology manufacturer Western Digital (NYSE: WDC) makes disc drives and a host of other electronic devices, including set-top boxes. Bowles sees the recent economic pickup as a short-term catalyst that will help propel Western’s revenues higher.

Bowles likes two medical device makers: Renal Care Group Inc. (NYSE: RCI), which runs dialysis centers for patients with kidney conditions, and Becton, Dickinson & Co. (NYSE: BDX), a manufacturer of blood glucose monitoring products. Recent versions of Congress’ proposed Medicare spending bill include boosts in dialysis spending, a

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