Stocks cheap, some contend

One broker looks at depressed prices, sees `a red dot sale'

March 13, 2001|By Eileen Ambrose | Eileen Ambrose,SUN STAFF

Despite yesterday's 436- point loss by the Dow Jones industrial average and the Nasdaq's sinking below 2,000 for the first time in 27 months, market experts say now may be the time for investors to start buying some beaten down stocks.

"This is the best sale we've seen in six years," said Chris Yanson, an investment representative with Edward Jones in Towson. "This is a red dot sale."

Market experts say there are several sectors where stocks are selling at attractive prices, particularly technology, where shares have been pummeled. Since its record-high close March 10, 2000, the tech-heavy Nasdaq composite index is down 61 percent.

"The technology values have fallen by $4 trillion. When value falls by $4 trillion, you've got to start looking through the debris" for bargains, said Larry Wachtel, a market analyst for Prudential Securities in New York.

In technology, Wachtel favors beaten-down semiconductor stocks.

If interest rates continue to fall, financial services companies, including banks, and retailers associated with home building should benefit, he said.

Energy companies are expected to continue doing well. Investors should also consider companies that supply drilling equipment, Wachtel said.

Some experts favor health care stocks because of the aging population. Yanson recommends consumer products because of the growing population and because U.S. manufacturers are increasingly selling those goods overseas.

Still, investors shouldn't buy a stock just because it's cheap, experts said. "There are 9,000 stocks out there," Wachtel said. "They don't march up all together and they don't march down all together. Each has its own story and timing."

The weak market makes it a good time for investors to review their goals and investment strategy. When the market was at its most bullish, it was easy for investors to say they were long-term investors who could ride out market risks.

"They are really being tested," said Bill Bartin, a financial planner with brokerage Tucker Anthony in Boston.

Investors should review - and revise, if need be - their asset allocation, experts said. Basically, this is how much investors hold in stocks, bonds and cash based on their goals, risk tolerance and years to invest.

In the late 1990s, when stocks seemed headed only upward, some investors abandoned asset allocation, putting all their money into the stock market, experts said.

"Two years ago, it was hard to explain to investors why they should have any bonds in their portfolio. And now the reason is obvious," Bartin said.

"If they had a well-allocated portfolio of bonds, stocks and cash, the ideal investor today would be selling some bonds to buy equities and rebalancing the portfolio," Bartin said.

Another basic step to take now is to check the diversification of one's stock portfolio, experts said. Well-diversified portfolios include large and small companies, foreign and U.S. shares, and growth and value stocks. Diversification works because when one area is weak, another may be stronger and, therefore, investors' portfolios are somewhat protected.

"Diversification may not be really sexy, but it at least can keep you from freaking out when the markets get scary like this," said Chuck Carlson, chief executive officer of Horizon Investment Services, a money management firm in Hammond, Ind.

Investors who are not diversified but who put money into the market on a regular basis, can easily begin to diversify their portfolio by putting new dollars into different types of stocks, Carlson said.

Diversifying in a down market can be harder for those without extra dollars to invest.

These investors should review the stocks they own and keep those that still have long-term value, Carlson said. Stocks without merit should be sold, even at a loss, and the proceeds put into stocks that have value and will upgrade the portfolio, he said.

Meanwhile, some financial advisers say they are receiving more calls in recent months as do-it-yourselfers have found it's not as easy as they thought to make money in the stock market.

"All of a sudden they are starting to realize pain and ... what is their threshold for pain," said Christopher Parr, a financial planner with Parr Financial Solutions in Columbia, who said he has been getting more calls since the fourth quarter of last year.

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