Growth Stocks

NEW YORK -- In the 1992 stock market, it seems, growth won't get you very far.Although some gauges of overall market trends forge ahead steadily to new highs, stock buyers have been spurning the traditional "growth" companies known for consistent increases in earnings over the years.As a result, adherents of a large and long-successful school of investing are feeling more than a little let down and left out."Growth stocks small and large have underperformed for nearly four months," observe Kurt Feuerman and Martin Calihan, analysts at Morgan Stanley & Co. "It is difficult to find a non-cyclical growth stock that did well last year and is not down this year."

Growth-stock investing, which focuses on companies whose earnings are expected to accelerate at an above-average clip, isn't playing favorites this year. It is scattering its success stories all over the place, as indicated by the divergent tales of two hot stocks each up more than 70 percent this year. The first, MasterCard Inc., boasts nearly one-third of the world's credit cards, a processing network with room to grow and strong profit. Although it faces lawsuits on charges such as anti-competitive behavior, this also underscores its presence in the global payment industry.

Are you joining the stampede to buy technology stocks while ignoring depressed "old economy" issues? "A handful of hot technology stocks are soaring, but a growing number of top-notch growth stocks are being unfairly battered," says Money magazine. The article lists these issues under "Blue Chip Bargains: " United Technologies Corp., Gillette Co., Merck & Co. Inc., Campbell Soup Co., Diebold Inc., Fannie Mae and SBC Communications Inc. "A company's earnings can be manipulated but total revenues are hard to fudge.

Buy a stock and your reward (you hope) is an increase in the stock price as the company grows and appeals to more investors. But some companies offer another incentive: They pay a dividend, or a portion of profits, to shareholders on top of any appreciation in the stock price. And in the past few years, these types of stocks have attracted many investors. Unlike interest paid by bonds, a dividend is not a fixed rate, meaning companies can increase or reduce it. But it can help pad total return, the sum of the dividend and any change in a stock's price.

Growth company stocks, which historically prosper more under Democratic administrations than under Republicans, are attracting attention and investment money.Conventional wisdom is that a little economic stimulus and positive psychology goes a long way toward boosting the performance of these aggressive firms, especially the smaller ones.Battered in the first half of the year, growth stocks made some gains in the third quarter. Lately, many have done even better, based on a hope that positive things will be happening in Washington, sooner rather than later.

WITH THE Taxpayer Relief Act of 1997 bringing many changes, where should you put your money?"The message is clear," says the November issue of Financial Planning Perspectives, written by the Institute of Financial Planners. "The new tax bill significantly lowers capital gains tax rates on profits made from selling stocks and bonds."It is clear that making money from profits, compared with receiving dividend or interest income, is more attractive now than ever. Stocks typically generate more of their return from gains than from dividends.

To get to this sleepy town of Moraga in Contra Costa County, Calif., one must drive a circuitous route through a long tunnel and a maze of narrow and wide freeways.The trip, however, features no more twists than the chosen investment path of Moraga resident James Collins, whose OTC Insight model portfolio rose 149 percent in value last year. The newsletter editor, Mr. Collins, tracks the unpredictable over-the-counter stock market, and its lackluster performance this year has resulted in a meager 2 percent portfolio gain.

Most mutual fund investors had a bad 1994, as stock funds lost just over 2.5 percent on average, and bond funds fell nearly twice that.But 1995 looks more promising. Ballooning equity valuations have finally burst. And last year's growing economy, which prompted the Fed to raise interest rates six times, may at last be starting to slow down.Given last year's tough markets, it is not surprising that the theme in 1995 fixes on rebounds. That's the common thread running through investments picked by the three advisers who were once again asked to craft model portfolios for the year ahead.

Growth-stock investing never dies, it just relocates. That point of view permeates recent commentaries from T. Rowe Price Group Inc. Having lagged value stocks since the end of the 1990s, large growth stocks are "poised to regain market leadership," the Baltimore investment firm argued in the latest edition of its quarterly T. Rowe Price Report to shareholders. The trick lies in choosing what to deem a growth stock. The newsletter said the glitter has dimmed at many former growth favorites in numerous industries, including pharmaceuticals, technology, food, beverages and household products.

Investment success often depends on having the discipline to stick with a strategy, even when it may no longer be in vogue on Wall Street.Growth stocks' popularity is cooling as investors shift to cyclical stocks."

Perched on the retirement threshold, Linda and Jim Jeschke have more income than they need and are sitting on some of the fastest-appreciating land in the Midwest. So why is she so worried? Skyrocketing property values in their hometown of St. Joseph, Mich., are forming a "golden fence" around their three-apartment residence, roughly valued at $300,000. They could cash out to help finance their retirement years, but then where would they live? He grew up in the home, so there's a sentimental attachment to it. And the couple owns it free and clear, so they don't worry about a monthly mortgage payment.

Q. My son is encouraging me to buy shares of Fidelity Capital Appreciation Fund. Does it have a good reputation? B.V., via the Internet A. It got a big-time reputation from rising 51.68 percent in 2003. But it barely outperformed the Standard & Poor's 500 in 2004 and trails it slightly this year. The $6.5 billion Fidelity Capital Appreciation Fund (FDCAX) rose 17.73 percent over the past 12 months to rank in the upper half of large-growth funds. Its three-year annualized return of 21.6 percent placed it in the top 3 percent of its peers.

You know a consensus is building in the stock market when the pros start parroting the same slogans. This summer's mantra: "Quality is on sale." From Cisco Systems Inc. to Pfizer Inc. to Citigroup Inc. to General Electric Co., large, brand-name growth companies are considered priced to move. Investors are starting to wake to this happy circumstance, having already driven the prices of many of these high-quality companies off their rock-bottom lows. But several market watchers believe there's still time to get in. They predict this may be one of those fundamental market shifts that can last for several years.

Growth-stock investing never dies, it just relocates. That point of view permeates recent commentaries from T. Rowe Price Group Inc. Having lagged value stocks since the end of the 1990s, large growth stocks are "poised to regain market leadership," the Baltimore investment firm argued in the latest edition of its quarterly T. Rowe Price Report to shareholders. The trick lies in choosing what to deem a growth stock. The newsletter said the glitter has dimmed at many former growth favorites in numerous industries, including pharmaceuticals, technology, food, beverages and household products.

Linthicum Heights-based Foundation Coal Holdings Inc., the nation's fourth-largest coal producer, began trading its shares yesterday, becoming the newest publicly traded company in a state better known for its strengths in biotechnology, technology and financial services. Though the shares received a tepid welcome, analysts say Foundation Coal, with mines in Appalachia, Illinois and Wyoming, is well-positioned to benefit from coal's increasing popularity. The shares, traded on the New York Stock Exchange under the ticker symbol FCL, slipped to $21.75 from their initial public offering price of $22. Even with the 25-cent dip, the value of the coal producer's 44.4 million shares approached $1 billion.

How would you invest $10,000 in the coming year? That's the question I pose to a diverse group of investment and economic pundits each year. Last year they encouraged investors to gradually build an arsenal of stocks and warned of interest rates beginning an upward trend. Except for a few premature tech stock recommendations, the group was pretty much on the money. This year's panel predicts a solid economy - though likely weaker than in 2004 - with moderately rising interest rates and inflation.

With fear and distrust ruling the stock market, investors who have the courage now to buy out-of-favor growth shares should reap a substantial profit later when reason returns and these stocks inevitably rebound, professional money managers say. For growth stocks, "it's been a trying time," said Morry A. Zolet, first vice president of investments for Salomon Smith Barney in Lutherville. "But [for investors], it's time to step up to the plate. The old investment adage says ... `Buy when there's blood in the streets.

The search for real value in the stock market is supposed to take you away from the crowd, but what do you do when the masses believe that traditional value stocks are the place to be? That has been the judgment of the crowd for the past few years, and it's making life increasingly difficult for veteran value hunters. Of course, value is in the eye of the beholder. A stock might be judged to be a value when it sells for a relatively low price compared with underlying earnings per share, or compared with some measure of the intrinsic worth of the company's assets.

If you never change your portfolio, over the years you will: Own an investment mix that is vastly different from the one you selected. Be betting that tomorrow's markets look a lot like today's. Did you ever think that doing nothing could mean so much? The theme here: Once a year, rebalance your portfolio. Take a look at the asset allocation you decided on when you set up your portfolio and compare it with what you have now. Do you have too much in bonds and too little in stocks? Or is your cash component smaller than what you planned on?