When you pick the right growth and income stocks, life can be a pleasure cruise. At least that seems to be the case for Rodney Collins, who manages several funds for J. & W. Seligman & Co. in New York City. You may recall that Collins, co-portfolio manager of the Seligman Income Fund, a balanced fund that invests in both stocks and bonds, said his criteria for investing in steady growing stocks included a healthy dividend yield and how cheap or expensive a stock is compared with its peers.
Collins’ conservative, income-oriented stance helped three of his five picks generate double-digit returns, fueling an overall 16.5% gain. The five were led by Mobil (NYSE: MOB), the energy conglomerate, whose shares soared 50.3% since Collins recommended the stock. Also skyrocketing: financial services giant Citigroup (NYSE: C), jumping 21%, and Baxter International (NYSE: BAX), a diversified healthcare firm, up 21.1%. Meanwhile, the two laggards experienced only slight declines. Banking services firm Washington Mutual (NYSE: WM) dropped 6.3%, while tobacco and processed foods manufacturer Philip Morris (NYSE: MO) fell just 3.6%.
Collins says his picks met most of his expectations for growth, and were either helped or hurt by economic forces such as rising commodity prices. Case in point: Fairfax, Virginia-based Mobil. Collins says, the increase in the price of oil to the $21 range, from historic lows of $10 a barrel last year, has boosted the share prices of oil companies like Mobil. Also, the impending merger with Exxon Corp. (NYSE: XON) has helped Mobil’s shares jump, since investors expect the new company to achieve superior earnings as it cuts costs and capacity.
Baxter, in Deerfield, Illinois, has fulfilled Collins’ expectations that its blood derivatives business would show improvement during the past year. The company added capacity in the fourth quarter of 1998 and that has helped its stock to rise.
New York City-based Citigroup-the result of the merger between Travelers Group and Citicorp-has performed well despite, concerns that the new company would prove to be unwieldy, Collins says. He cites so-called cross-selling opportunities among customers in Citigroup’s various units as an important pillar supporting the stock’s earnings momentum. Like other financial firms, the company’s shares recently suffered some volatility because of concerns over the Federal Reserve’s interest-rate hikes. Although Collins calls this a macroeconomic concern, it does not affect the strength of Citigroup’s core businesses.
As for the two underperformers, Collins attributes Washington Mutual’s lower price partly to shrinking spreads on the interest it charges customers for loans and what it pays out on deposits, making it difficult for the firm to generate higher profits. And New York City-based Philip Morris’ stock has been hurt by the threat of additional tobacco-related lawsuits at the federal and international level, particularly from Latin America.