Stocks still fit different investing styles
USA Today
Call it patriotism or call it financial insanity. However you describe it, some investors are mustering the courage to buy stocks again, even though the Sept. 11 attacks continue to rattle the stock market and economy.
In doing so, it's more important than ever to know what your objectives and taste for risk are. Depending on what type of investor you are, here are some stocks that suit four investment styles.
The nail biters
These ultra-conservative investors want to stay in stocks but can't stomach a lot of volatility. They realize that as bad as things look now, over time, stocks tend to outperform bonds and have better odds of beating inflation.
For these investors, USA Today looked for stocks that even a nervous Nellie could live with. First, we only considered large-cap stocks with market values of $5 billion or more. Historically, large stocks have been the most stable over time because they tend to have more diversified product lines.
Consider Progress Energy, the parent of Florida Power, which supplies electricity to 1.4 million Floridians. Although the S&P 500 lost 6.8 percent since the Sept. 11 attacks, this stock is down less than 1 percent. Like most utilities, the company can offset swings in fuel costs to a certain degree. Florida Power, for instance, has shifted to more oil, natural gas and nuclear-generated power, because coal costs have been rising.
Other stocks in this category to consider: Xcel Energy, Reliant Energy, UST, Equity Residential Properties Trust, PowerGen, Philip Morris, Genuine Parts, TransCanada Pipelines.
The cool heads
These investors are edgy about the economy and stocks, but are still willing to buy "good" companies at low prices.
To suit such investors, we first looked for stocks with reasonable prices compared with earnings outlooks. To do this, we looked for stocks sporting price-earnings ratios based on the past 12 months' earnings that are less than the expected annual earnings growth rate over the next five years.
To protect investors from investing in companies that have boosted earnings by simply cutting costs, only firms with 20 percent or better annual revenue growth over the past five years were included. And to make sure the companies were in growth mode, the requirements erased companies where the revenue during the past year grew slower than the average revenue growth in the past five years.
Because cautious investors want higher-quality stocks, we included only those with market values of $1 billion or more.
This list is dominated by tech and oil firms. Remember that strong past growth doesn't mean these companies are immune to the economic slowdown.
Other possibles: telecom gearmaker Tellabs, CDW Computer Centers, Newfield Exploration, Precision Drilling, USX-Marathon, Fidelity National Financial, ACE Limited, Total Fina Elf, Dollar Tree Stores, Novellus Systems.
The bargain hunters
These investors think they know something the rest of the stock market doesn't.
If you're this type of investor, tread carefully. Remember, you're betting against the judgment of thousands of money managers and mutual fund managers who are fleeing in terror from certain stocks. But if that only entices you more, USA Today and Multex.com teamed to find stocks that only a contrarian could love.
First, for stocks to qualify, they must have lost at least 15 percent of their value over the past four weeks. Even contrarians don't want to buy junk. To make the list, the companies must have earnings per share growth above the industry average during both the past three- and five-year periods.
What's more, the company must have an operating margin (what's left of sales before paying interest and taxes) that is above the average for its industry. Return on investment and return on equity (two popular gauges of management's ability) must also be above the industry norm.
On the contrarian's list is consumer electronics retailer Best Buy, a classic best-of-industry company. While it, too, has been harmed by the slowing economy, strict financial management reduces the pain. Some masochistic contrarians may even be tempted to dip into the ultimate out-of-favor industry: airlines.
Other possibles: Enron, Enzo Biochem, Oracle, Carrizo Oil & Gas, The Limited, Blair, Bank of New York, Stratasys, Magellan Petroleum.
The megabulls
If you're this type of investor, you can endure huge risks with the remote chance you'll hit the hottest stocks in the hottest sectors and make a quick buck.
For this group, USA Today found stocks that not only have been top performers over the past month but are also near their 52-week highs. To avoid stocks that are just high-flying blips, we screened for stocks with the highest "relative strengths" — a statistic that ranks stocks' three-month performance against the market's.
Aggressive investors look for revenue growth, not just stock price movement, so we insisted revenue posted this year so far be 25 percent or more higher than the same period in 2000.
Other possibles: Gentner Communications, insurance broker Brown & Brown, Alliant Tech systems, RenaissanceRe Holdings, Right Management Consultants, Crescent Banking, Arthur J. Gallagher, American Home Mortgage Holdings, Compania de Minas Buenaventura, Energy West.
