| BUSINESSWEEK ONLINE : JUNE 14, 1999 ISSUE | ||||||||||||||||||||||||||||
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| COVER STORY
Value Investing Is Back--With a Twist In mid-1999, growth is no longer the only game in town Not even the most bullish investor can rest easy these days. After passing the 11,000 mark, the Dow Jones industrial average has retreated, seemingly unable to muster the energy to scale new peaks--and highly susceptible to sudden sell-offs. Bad news is no longer shrugged off with aplomb. And many threats to steady gains loom large: rising interest rates, inflationary pressures, and crazy Internet stock prices. No question, caution signs are flashing. But that's no reason to turn tail and hoard cash. Wise investors should look for value. That may sound at once obvious and a tad old-fashioned. After all, value investors--those down-to-brass-tacks types who follow time-honored rules for investing in companies with hard assets and cheap stocks--haven't done especially well in the '90s. Meantime, their growth-oriented brethren have been taken on a spectacular ride as ever-rising profits catapult high-tech companies forward. But value investing--updated for the New Economy--may once again offer investors good returns, and in this Midyear Investment Outlook, BUSINESS WEEK gives you the tools to identify and search out value. First, check out how to define value investing. Don't think it means just applying the sharp-penciled analysis of Benjamin Graham to identify promising but stodgy underperformers. The new value analysis gets beyond the glitz of New Economy stocks with sky-high price-earnings ratios. It shows some of these stocks to be unstoppable brands with huge market penetration and ample cash flow, or value--and plenty of it. Investors can also try to lock in value by unearthing some of the small and mid-cap stocks whose earnings potential is good and not yet fully recognized (page 138). And for the first time in several years, investors can beat the large-cap funds by funneling money into mid-cap, emerging-market, and other mutual funds (page 154), even though their recent performance might not be sustained. LATIN LIGHTS. There will be many ways to profit as the millennium approaches. While Internet stocks are already well off their highs, earnings in the broader tech sector are expected to log big gains next year, which should bolster prices (page 142). The watershed event itself may prove a wild card for the markets: The pace of Y2K compliance varies widely among companies, and many are considered poorly prepared and have taken a drubbing. Now may be the time to troll for cheap buys among such stocks (page 144). Among the possible picks: financial companies, which are still readying themselves for the 21st century by becoming Y2K-compliant. The economic outlook, both in the U.S. and overseas, will, as always, figure heavily in how stocks, bonds, and other investments do--but there may be a few surprises for markets that have gotten used to the domination of a strong, low-inflation U.S. economy. Indeed, the markets have taken this for granted for some time: Buoyed by productivity gains, the U.S. was a bulwark for investors when economic turmoil rocked Asian countries, Russia, and Brazil in 1998. Now investors may have to adjust their assumptions. Some Asian markets are recovering, there are a few bright lights in Latin America, and a number of European companies are revving up by restructuring (page 150). In the U.S., meanwhile, the April inflation data sent a chill through the markets, prompting the Federal Reserve to change its operating bias toward tightness. The stock market, of course, hates higher rates, and the bull market in the U.S. Treasuries is probably over. But rate pressures should be modest. Chances are that the long bond will trade in a narrow range, so investors should look to riskier high-yield and emerging-market debt to win good returns (page 158). For now, real estate investment trust (REIT) prices are rising, but it's unclear whether that will continue (page 162). And BUSINESS WEEK is also helping investors keep tabs on what short-sellers are up to (page 146). In the search for value, every bit of information helps. It may take patience, clearheadedness, and hard work, but there's value out there in many forms, and savvy investors will ferret it out. By Karen Pennar in New York To read a letter to the editor about this story, click here. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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 RELATED ITEMS COVER IMAGE: Midyear Investment Guide: The New Value Investing
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