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2001 BW 50



Gurus of Growth
We've chosen six experts who have stood the test of bull and bear markets

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You can't control the stock market, but you can link up with those who know how to make your money grow. We've chosen six who have stood out in bull and bear markets. Some are value investors who look for bargains among the wrecks; others want companies whose earnings are gaining steam. Another is an investment strategist who does not manage money but counsels those who do. Past performance, of course, is not indicative of future gains. But these folks should keep your portfolio chugging along.

Deere Heart
Steve Galbraith
Chief Market Strategist,
Morgan Stanley Dean Witter

Galbraith, who recently took over for the well-known Byron Wien, made his career by being a worrier--and he hasn't stopped. "The recession is over, but the bull market is on shaky footing," he says. Prices have already risen in expectation of profit recovery, which, he believes, will be only in the high single digits. To do better, Galbraith suggests investors look to old Rust Belt companies--"the real ugly stuff." One example: Deere (DE ), the tractor maker.

Indeed, Galbraith says many of these unhip sectors have two things going for them: time and price. First, it has taken Wall Street time to realize that boring industries such as containers and packaging, unlike many Internet sites, are good businesses. Their prices, he says, are attractive because they have been ignored so long.

Other Galbraith observations:
-- Forget bonds. They thrive in a weakening economy, and the economy is gaining strength.

-- Go global. Foreign stocks are cheaper than U.S. issues. "The U.S. is one of the most expensive markets in the world," Galbraith says, yet the average U.S. investor has given up on international investing.

How Fast Is Fast?
Claire Young
Janus Olympus Fund
Average Annual Total Return:
1 Year, -12.2%; 5 Years, 16.5%*

Claire Young wants to invest in fast-growing companies, and fast is a relative term. Back in 1999, when she doubled her investors' money, Young wouldn't even consider betting on a company with less than 25% annual revenue growth. Today, she'll settle for 10%.

That's leading Young to more prosaic industries--such as financial services. Most analysts figure that bad loans will increase as debt-ridden consumers succumb to bankruptcy. But higher default rates are built into stock prices now, Young explains. "People get overly optimistic when the economy is doing well, and they get overly pessimistic when the economy is slow," she says. Young thinks Wall Street has beaten up the large drug companies too much on concerns over their pipelines of new drugs.

And what about tech? Young doesn't see much new in computers, and she notes that there's a glut of bandwidth available now. "I'm waiting to see new products out there that will spark another upgrade cycle," she says. Until then, a company growing at 10% a year looks like an attractive proposition.

Media Maven
Mario Gabelli
Gabelli Value Fund
Average Annual Total Return:
1 Year, 5.1%; 5 Years, 17.7%; 10 Years, 16.3%*

Mario Gabelli, who has been on Wall Street for 35 years, remembers when bear markets drove stocks down to ridiculous levels. That's why he can't get too excited about what's available in the market now. "The real bargains were in 1975, 1976--when no one wanted to own stocks," he says. Now, with the Standard & Poor's 500-stock index up about 19% from its September lows, most stocks aren't cheap by historical standards.

Like most other value investors, Gabelli doesn't buy stocks just because they're at a low price relative to earnings. Cheap stocks can stay cheap for a long time, so he also wants to see a catalyst that will pull undervalued stocks out of the doldrums.

Right now, he's betting on a wave of mergers in the media business. A new Federal Communications Commission policy is the catalyst that will allow cable companies to own television stations in the same market. So he figures cable companies will start buying media companies, which will rebound when the economy and advertising picks up.

And, he says, mergers should sweep the beleaguered telecom industry as well. "We're going to see the Verizons (VZ ) and SBC Communications (SBC ) step up and buy wireless or long-distance companies," Gabelli says. One likely target: Sprint (FON ). Reason for mergers? "Capacity has to be removed, or brought to someone who will reenergize it."

Small-Cap Believer
Sam Stewart
Wasatch Core Growth Fund
Average Annual Total Return:
1 Year, 39.2%; 5 Years, 24.0; 10 Years, 18.8%*

Growth investing is a lonely business these days. Sam Stewart knows why--and it's not just because precious few companies are posting double-digit earnings gains. Many growth investors forgot two things during the great bull market of the 1990s: business analysis and valuation. "You have to drill down to a company's basic business model and ask: `How good is it?"' Stewart says. "And even if you have a good business model, you still have to pay some attention to price."

Stewart thinks that earnings growth drives stock prices and that small-company stocks offer the greatest opportunities to achieve that growth. He's mindful about what he pays, too. He wants a company whose price-earnings ratio is less or equal to the company's expected five-year growth rate.

Stewart doesn't expect to see torrents of cash coming into small-cap stocks. Big institutional investors don't put a lot of money into them, even when they're hot. Traditionally, it's an area fueled by individual investors--and Stewart thinks they're largely on the sidelines.

Stewart is sticking with companies with records of steady earnings growth. Rent-A-Center (RCII ), which rents out furniture and gives customers the option to buy, is one of his favorites. Another is AmeriCredit (ACF ), a subprime lender that has attracted a lot of short-sellers. "I'm O.K. with that," Stewart says, in part because those speculators will eventually have to buy stock to cover their positions. And that will boost the stock's price.

Unlikely Values
Eric McKissack
Ariel Appreciation Fund
Average Annual Total Return:
1 Year, 23.2%; 5 Years, 17.9; 10 Years, 14.9%*

Eric McKissack wants to buy cheap stocks, but certainly not junk. He likes companies with strong balance sheets in reliable businesses. That's why he has been looking at advertising companies, typically early beneficiaries of an economic upturn. One example: Interpublic (IPG ), the world's largest advertising conglomerate. Media companies also get a boost when ad spending rises, which is why McKissack favors newspaper publisher McClatchy. "There's lots of room for additional media consolidation," he says.

He is also a fan of Black & Decker (BDK ), the power-tool manufacturer. The company is a successful marketer to the big home improvement stores, and it's expanding its overseas sales as well.

It helps if the company is out of favor. McKissack is interested in Cendant (CD ), still unloved because of earnings problems because of a bad acquisition. Says McKissack: "The company is quite clear about what got them in trouble." It has recovered from its case of what's now called Enronitis.

Keeping It Simple
Wallace Weitz
Weitz Value Fund
Average Annual Total Return:
1 Year, 1.6%; 5 Years, 19.6%; 10 Years, 17.9%*

Don't come to Wally Weitz with the latest hot tech stock. If he doesn't understand the product, he doesn't buy the stock--which eliminates most tech companies. His other criteria: The company must have a market niche strong enough to let it set prices for its products; it must generate more cash than it needs to operate; and, perhaps most important, it must have honest management.

One of Weitz' favorite holdings is Berkshire Hathaway (BRK.A ), run by fellow Omaha native and bargain-hunter Warren Buffett. But looking for value isn't a mechanical process, Weitz says. You can't just pick stocks with a low price-earnings ratio or choose from among the ones making new 52-week lows. "It's about using common sense and trying to understand what a business is worth to a businessperson," he says.

Right now, he's finding value in the cable-TV industry. Coaxial cable into the home provides a huge pipeline for television, the Net, and advertising. One favorite: Qwest Communications (Q ). There have been investor worries over the Denver telecom giant's accounting, but Weitz says that's all in the price: "I still feel just fine about Qwest."

Weitz made big bets on out-of-favor sectors in the past: financials in 1999 and cable stocks in '96. Yet both choices, contrarian at the time, have worked out well for shareholders. Says Weitz: "You have to have the willingness to look stupid for a while." That might be a small price for a big payoff.

* All fund returns areas of Mar. 14, 2002. DATA: LIPPER INC.

APRIL 2, 2002

By John Waggoner, USA Today

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