Hot stockbrokers share their hottest picks; direct from the experts to you: free advice on investment strategies and buy-now stocks - Hot Investment Strategies - Cover Story

Black Enterprise, April, 1994 by Carolyn M. Brown, Frank McCoy

Direct from the experts to you; free advice on investment strategies and buy-now stocks.

It seemed that the tinsel and horns used to usher in '94 were barely put away when millions of investors were ready to go into mourning. Everybody was buzzing about Wall Street, especially market bears coming out of hibernation to claim that the 40-month bull market was dead.

What happened? Pretty much what the experts had anticipated. After the Federal Reserve raised the interest rate from 3% to 3.5% in February, the Dow Jones industrial average fell 96 points, just when it was 15 points within the 4,000 mark. Fear hit investors around the country as they anxiously waited for a repeat of Black Monday.

Although the aging bull may have retreated a bit, it certainly did not die out. In fact, true to form, this first phase of a bull market was strengthened by falling interest rates. And if past market conditions hold true, the second half of the bull will come from increased corporate earnings.

That should be great news to investors, as most industry observers remain confident that the current environment of low inflation, low interest rates and higher corporate margins and earnings will hold steady throughout 1994.

Translation: This is a good year for the equity market since stocks are expected to deliver positive gains for the fourth year in a row. The sentiment now is that the bull is forging full steam ahead. So, for investors - new and old - now is the time to grab hold of the horns and enjoy the ride.

To help you maximize your returns in the stock market, BLACK ENTERPRISE convened a roundtable of six of the nation's most astute stockbrokers. Meeting in the New York headquarters of the magazine this past January were: Ed Clanton, A.G. Edwards & Sons Inc. (Springfield, Ill.); Warren R. Colbert Sr., Paine Webber (New York City); Lem Daniels, Bear Stearns & Co. Inc. (Los Angeles); Alex P. Middleton, Merrill Lynch & Co. Inc. (New York City); Brenda Neal, Smith Barney Shearson Inc. (New York City) and Steve Sanders, Hunt & Sanders Investment Advisors (Philadelphia). We asked the pros to provide investment strategies for readers to take advantage of current market conditions, and to give us their top sectorial and individual stock picks. (New investors should turn to the glossary of financial "Terms You Should Know" in "Picking The Right Mutual Funds For You" in this issue.)

BLACK ENTERPRISE: Like most individual investors, BE readers are comfortable with mutual funds but somewhat skittish about the stock market. Why is investing in stocks the smart way to go in 1994?

STEVE SANDERS: No other investment has outperformed stocks over the last 25 to 30 years. This does not mean putting your rent money in the stock market, but it does require you to be willing to take a calculated, educated risk on stocks by buying companies that you believe in and are familiar with. Also, by diversifying your portfolio, you reduce your risk.

ED CLANTON: But investors can't wait until a stock has already moved and made the headlines. Two years ago, Chrysler Corp. was a $14 stock and you couldn't give it away. Today, it's just under $60.1 remember selling Chrysler bonds two or three years ago at 12%. I asked my clients if they thought Chrysler was going broke within two years, and of course they said no. So, I told them to buy the bonds even though Chrysler was going through problems and was restructuring.

BLACK ENTERPRISE: A real brainer is knowing what to buy. What advice would you give new investors on how to choose a stock?

BRENDA NEAL: My advice is to invest in what you know. My father only bought Chrysler and Dodge cars. Say you buy nothing but Tide, and the company that produces Tide (Procter & Gamble) has a good track record. That's the stock you should evaluate, and then buy it if it looks good.

BLACK ENTERPRISE: What is continuing to fuel the bull market as it forges into its fourth year?

LEM DANIELS: Many CD holders have been disenchanted with the 2 1/2% to 3% return on their money. Now, a lot of the money from CDs and money market accounts is flowing into the stock market as investors look for higher returns. The market is not only heating up domestically, but there is increased interest in international opportunities.

BLACK ENTERPRISE: What looks good on the international scene?

NEAL: Investments in the U.S. represent only one-third of the total stock market. Investors would be remiss in overlooking what's happening beyond our shores. The Pacific Rim of Asia, for example, is growing by leaps and bounds.

DANIELS: I would look at how countries are rebuilding their infrastructures. For instance, if you want to get in the Latin American or Mexican market, one of the best buys is TelMex (Telefonos De Mexico).

BLACK ENTERPRISE: What sectors on the domestic front look good to you?

SANDERS: Family-oriented restaurants, generic drugs and financial services industries definitely will do well.

BLACK ENTERPRISE: Why financial services?

CLANTON: When interest rates dropped, homeowners refinanced their mortgages. Now, they have an extra $500 or $600 a month to invest. Many of these 30- and 40-year olds are quickly realizing that the gold watch and pension may not be waiting for them when they retire. And from a very practical standpoint, people are beginning to actively take care of their own finances. This translates into more business for the banks.