inflation has been anticipated,” Burks says, “so I don’t look for further increases in 2000.”
LARGE-CAP VALUE STOCKS TO ADVANCE
The combination of economic growth and moderate inflation has powered the U.S. stock market in the 1990s, but will that hold true in 2000? In general, our experts see good if not great times ahead. “Continued consumer spending probably will mean greater corporate profits, which will be positive for stocks,” says Rodgers.
Market leadership is likely to shift to large-capitalization value stocks in an economic slowdown, Eley predicts. “In a weaker economy, larger companies usually do better than small ones,” he says. “In addition, value stocks are not as vulnerable to price collapses as growth-oriented issues might be.”
Eley thinks the excessively strong performance of large-cap growth stocks could end in 2000, and large-cap value stocks will advance, reversing a years-long trend. Large-cap growth funds had an average total return of 34.32% in 1998, beating large-cap value funds’ return of 12.38%, according to Morningstar, a mutual fund research firm in Chicago. And through the third quarter of 1999, large-cap growth funds returned 8.58%, compared with a 0.08% gain for large-cap value funds, according to Morningstar.
Investors should look for companies with strong balance sheets, low price-to-earnings and low price-to-book ratios, Eley says. Further, he recommends companies with market leadership and worldwide exposure whose stocks haven’t enjoyed big advances in their prices. For example, consider stocks like Chevron (NYSE: CHV), Dow Chemical (NYSE: DOW), DuPont (NYSE: DD), General Motors (NYSE: GM), Philip Morris (NYSE: MO) and Sears, Roebuck & Co. (NYSE: S) when building a basic portfolio, he says.
LAGGARDS COULD OUTPERFORM
Eley prefers basic industrial companies for 2000, but some technology companies that were beaten up earlier in 1999 are now more attractive. “If you have a large portfolio, you might include well-valued tech companies” such as Eastman Kodak (NYSE: EK), Harris (NYSE: HRS) and Raytheon (NYSE: RTNa).
Okomo points to three sectors of the equity market that he expects to excel in 2000. “The technology sector should continue to be a growth area, with the expansion of the Internet generating excitement,” he says. His tech favorites: AT&T (NYSE: T) and EMC Corp. (NYSE: EMC).
The healthcare sector appeals to Okomo because of demographics: an aging population will need more medical care. Leading pharmaceutical companies such as Merck (NYSE: MRK) and Pfizer (NYSE: PFE) will benefit from the aging of the population, he says. Okomo also thinks 2000 will be a good year for leisure companies such as Walt Disney (NYSE: DIS) and Time Warner (NYSE: TWX). Although Disney stock has been beaten down, Okomo says the company still possesses valuable assets-its extensive film library and theme parks-that will help the shares rebound.
Bolton estimates that stocks might return 8% to 9% on investments in 2000, which would be near the long-term record. “The best buying opportunity may come after the beginning of the year,” he says, “if Y2K fears temporarily depress the market.” His favorite market sectors are those that have lagged:
small-capitalization stocks, foreign stocks and real estate