The power of diversification

The portfolio: There’s a good reason why investment pros keep harping on diversification: safety. Take Hamilton Lewis Private Screening portfolio from December 1997. Over the past year, while the market buffeted tech stocks and healthcare issues like the ones Lewis (888-373-2082) chose, the Houston money manager finished the year up 14% thanks to Best Buy, a maker of retail consumer electronics. Best Buy, which went through a 2-for-1 split in May, rocketed well over 200% for the year.

The outlook: As frustrating as it might be, Lewis says he’d recommend holding on to three of his four other picks. At one point during the year, United Health Care raced up to $75 a share, when the company was reported to be in merger talks with HMO giant Humana. The deal fell through, and United plunged to the $30-per-share range. The company remains a takeover candidate in Lewis’ eyes. Telecommunications equipment maker DSC was recently snapped up by the French firm Alcatel. Lewis likes the industry and says stay put in DSC for future gains. Lewis believes Apex should turn around as soon as technology gets a better break in the market.

The one stock Lewis would jostle is C-Cube. Instead, with the market likely to undergo some volatility in the near future, Lewis recommends buying into Gillette (NYSE: G), a stock that–despite falling from a high of $62 to $42 this’ year– has a solid position in its consumer markets.