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During the past 20 years, the author has watch China move from being a developing country into an industrial superpower
Money Moves, 5/24: Chocomize Co-Founder Fabian Kaempfer talks with Bloomberg’s Deirdre Bolton about the business of customizing chocolate
The president's campaign has a new rule—no cell phones allowed
In honor of remote control inventor Eugene Polley, we recognize other influential but neglected inventors who have felt the sting of stolen glory
Forget Adderall. Traders now pop chia seeds to stay focused and energized
The Italian automaker and others are adding hybrid technology to elite cars
The storied bridge that links San Francisco and Marin County changed the face of California
Schools cultivate ties with startups before they're big successes
Dave McClure's traveling venture capital show scours the world for promising startups
Get Four
|  | DECEMBER 27, 2004
A Year for Savvy Stock-Picking [Page 2 of 2] Q: How about the income side? Any advice on bonds?... A: Well, if you want to get about 5% to 6% return on your money with very little risk, you can do a few things. First, some municipal bonds are paying about that much. And if you're willing to go down the credit-rating scale slightly, you can do pretty well. For instance, a 10-year BBB muni yields about 4.2%, which equals 6.5% taxable yield. You can also invest in closed-end bond funds. There are a couple that we mentioned: the Van Kampen Income Trust (VIN ) and Oppenheimer Multi-Sector Income Trust (OMS ). Both are yielding about 5.5%. International bonds can enrich your portfolio somewhat. You would probably want to pick an international bond fund such as the Credit Suisse Global Fixed Income Fund (CGFIX ), which has a 12-month yield of around 10%. Q: With rates rising, why would you expose yourself to bonds now? How about TIPS [Treasury inflation-protected securities]? At least you are protected from inflation. A: That's a great question, and you wouldn't want to buy long-term bonds right now, for the most part. This is simply because as yields go up, the price of the bond will come down, and that will make the bonds that you hold less valuable. But if you are just concerned about the yield, you should look at some of those we just mentioned, and also you might look at short-term bond funds, where you won't get stuck as rates rise and still get an O.K. return. Heck, it's better than losing your money on a risky stock. TIPS are a good idea in this environment because inflation does seem like it's growing. Q: What style of investing do you favor -- bottom-fishing, jump on a rising star, high dividends? A: Anything that works. Seriously, what you're asking is really is do I prefer value, growth, or dividend-paying stocks. And I think the answer to that is that I like quality stocks in all three of those categories. I probably wouldn't be putting my money, for instance, into Google (GOOG ) or eBay (EBAY ) right now. That's just my opinion, but I do think it's wise to shy away from stocks that have had huge runs. And it's always a good idea to look for stocks that are poised to run. Q: If not Google and eBay, are there any wise Internet plays? A: Absolutely. The best sector in terms of the Internet right now is Internet advertising. It's poised to outgrow magazine advertising in two years. So you want to get into some of these companies that already have a toehold in that area and are growing like gangbusters. Some names would be InfoSpace (INSP ), DoubleClick (DCLK ) -- which also happens to be a takeover prospect -- and aQuantive (AQNT ), which has powerful clients like Microsoft and Verizon (VZ ). Q: What's the BW outlook for corporate earnings in the year ahead? And any stocks that could benefit or suffer? A: Well, earnings growth is poised to slow in 2005. It was up about 19% this year, but next year corporate profits are expected to be up only about 11%. So you need to focus on companies that have very strong earnings and are cash-rich. And again, often those are the companies that pay dividends and are raising their dividends. We think these are the companies that will do best in 2005. Q: What are the prospects for energy stocks? And how about alternative energy? A: Alternative energy is an interesting area right now. It's getting more funding, for one thing. And there's a big interest in it because of the war in Iraq and the high prices of oil in general. The problem with some of these companies, however, is that a lot of them still aren't profitable, and people just don't know ultimately who the winners are going to be. We like a couple, which actually have been making money. These are: Vestas Wind Systems (VWSYF ) -- the world leader in wind turbines, though it faces some stiff competition -- and Impco Technologies (IMCO ), which makes systems that enable cars to run on alternative fuel. So if you want to hold these, it's probably smart to be thinking long-term holds, but it is still a bit risky. In terms of oil companies, I would say stick with the big ones like ExxonMobil (XOM ) because they will continue to benefit from the high price of oil. Q: Marcia, I guess you can sum up your thoughts with one word, "quality." A: Yes, if you don't want to take on a lot of risk in a year when the market is probably not going to go gangbusters, it's best to focus on the stocks where you going to get a good dividend or where there is strong growth potential, or with companies with very strong earnings. That's not to say there aren't some niche plays like we just talked about, such as alternative energy, Internet advertising, or international. But for your core holdings, it's best to be in very strong companies.
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