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SPRING 2003

INVESTING FOR GROWTH

Thomas McManus: Bye-Bye Bearskin


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Many Wall Street seers remained upbeat even as the bear market mauled investors. Thomas McManus wasn't one of them. The unassuming chief equity strategist at Banc of America Securities is well known for his astute market calls. One of his best: turning sour on tech in October, 1999, five months before the Nasdaq bubble burst.


More recently, McManus shed his bearskin. He figured stocks were so cheap and investors so blue that the markets were bound to rally when war worries subsided. That's just what happened in the days leading up to the start of the war.

Just as Wall Street analysts went overboard with corporate earnings projections in boom times, they've now become too pessimistic. As a result, stocks look pricey because investors aren't taking into account that earnings will accelerate smartly as the economy regains its health, the strategist reasons.

The risk to his forecast, McManus allows, is of the economic recovery he expects later this year being delayed. "We're worried that there would be some sort of negative surprise and you might wake up one day and see the market down 4% to 5%," he says. Still, McManus expects that stocks will return 7% to 8% annually on average over the next two to five years. That's not much by bull market standards, but after the last three years, investors would be delighted.

Some stocks McManus believes will shine brightest as the war passes and the recovery takes hold are Carnival Cruise Lines (CCL ) and Walt Disney (DIS ), which will benefit as people resume personal travel. He also favors Patterson-UTI Energy (PTEN ), which provides drilling services to oil and natural-gas producers. The company has cashed in on the recent spike in natural gas prices. McManus reckons that gas prices will remain firm as the economy revs up, allowing Patterson-UTI to continue to prosper.

MARCH 24, 2003




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