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The Honolulu Advertiser

Posted on: Tuesday, September 25, 2001

The September 11th attack
Stocks a good bet, strategists say

Bloomberg News Service

NEW YORK — Wall Street strategists are encouraging investors to buy stocks after the Dow Jones Industrial Average posted its biggest weekly decline in almost 70 years and European benchmarks dropped to four-year lows.

Strategists at Goldman, Sachs & Co. and Banc of America Securities LLC told investors to boost the percentage of U.S. stocks in their portfolios. Credit Suisse First Boston said money managers should buy more stocks around the world.

The 14.3 percent decline in the Dow last week already reflects the expected plunge in corporate profits over the next few quarters, bullish strategists say. With interest rates dropping since terrorists destroyed the World Trade Center and damaged the Pentagon two weeks ago, the economy is likely to surge next year, lifting earnings, they say.

"It is time to buy U.S. stocks," Abby Joseph Cohen, Goldman's chief investment strategist, wrote in a report.

Some strategists recommended buying shares of consumer staples, drugmakers, utilities and retailers that sell everyday items because they will likely maintain earnings growth regardless of the state of the economy.

Since the attacks, defense, gold, publishing and telephone groups have been the best performing industries in the Standard & Poor's 500 Index. Hotel and airline stocks, including Starwood Hotels & Resorts Worldwide Inc. and US Airways Group Inc., have been among the biggest decliners.

Last week, the Dow posted its biggest weekly slide since the Great Depression in 1933. Germany's DAX index touched its lowest since October 1997 and the United Kingdom's FT-SE 100 fell to its lowest since April that year.

Investors should place 75 percent of their assets in stocks and 22 percent in bonds, with the remaining 3 percent in commodities, said Cohen, whom money managers ranked as the No. 3 strategist last year in Institutional Investor magazine's annual survey.

That's an increase of 5 percentage points in her stock allocation and a decrease in bonds of the same amount.

Bank of America's Thomas McManus raised his stock allocation for the second time since Thursday. Consumer confidence bottomed last week and the stock market's slide made stock prices even more attractive, he said.

McManus said investors should allocate 70 percent of their holdings in stocks and 25 percent in bonds. On Thursday, he raised his recommended stock allocation to 65 percent and reduced his bonds allocation to 30 percent.

Andrew Garthwaite, Credit Suisse First Boston strategist, said investors should buy more shares of companies around the world. The London-based strategist said investors should keep 70 percent of their assets in stocks and not hold any cash. He previously recommended clients place 65 percent in stocks and 5 percent in cash. The strategist maintained his 30 percent bond allocation.

Stocks should post better returns than bonds in the next 12 months, Cohen said, because the S&P 500 is undervalued and the Federal Reserve is pumping money into the financial system, which should help limit the economic slowdown.

"We believe that economic growth will be boosted in 2002 as a consequence of more simulative monetary and fiscal policies," Cohen wrote.

The Fed cut its benchmark interest rate to 3 percent a week ago, the central bank's eighth reduction this year. The Fed has also injected cash into the financial system by lending billions to banks.

The Securities and Exchange Commission has eased restrictions for another week, making it easier for companies to repurchase their own stock to help limit the market's decline. As of Friday, companies had bought back about $34 billion in stock, Cohen said.