Stocks fare better under Democratic presidents

Deseret News (Salt Lake City), Jan 3, 2005 by Brendan Boyd

Historically, stocks have fared better under Democratic presidents, observes Business Week. But when a Republican incumbent has been re-elected, the market has fared well, too, rising an average 11 percent in the first year of the president's second term. Of course, when that incumbent was defeated, stocks have done even better, returning 14 percent on average in the first year of the new administration.

AmSouth Large-Cap Fund has returned a solid 11.95 percent on average annually to its investors over the past decade by sticking with high-quality blue-chip growth stocks with earnings-growth rates far superior to the general market's. But it also wants that growth to last. So it emphasizes established companies with sturdy returns on equity and low debt. Recent favorites: Applied Materials, GE, Hewlett-Packard, IBM, Johnson & Johnson, Medtronics, Pfizer.

David Maris, Banc America Securities' specialty-pharmaceuticals analyst, has a reputation on Wall Street for calling things straight. "He's made some very bold calls," says Tom Malley of Janus Global Life Sciences Fund. "He's also very honest. If he doesn't like a stock but there's good news, he says that, too." Right now Maris likes ophthalmology company Alcon, which has a new drug to treat age- related macular-degeneration, and Eon Labs, which is preparing to sell a generic version of the pain-reliever Duragesic.

Any company's best defense is a bulging bank account. Smart Money magazine (1755 Broadway, New York, NY 10019) recently went looking for stocks with debt-to-equity ratios of 0.1 or less, five-year returns on equity of more than 10 percent, no negative earnings in three years, cash and short-term investments worth at least 15 percent of market value, and insider ownership of at least 15 percent. Its nine qualifiers: Adtran, Bandag, Bebe Stores, Check Point, Heartland Express, Ixia, Kenneth Cole, Superior Industries, Tootsie Roll.

Robert Auwaerter, head of bond investments for the Vanguard Group, is avoiding long-term bonds, especially Treasurys. "For now, investors should try to stomach money-market funds or short-term bonds," he says. "I think investors could get hit by big losses. Given the potential for interest-rate increases, long-term bonds aren't the place you want to be."

Media consolidation is heating up. And more is on the way, predicts Money magazine. "For investors who prefer to play this trend through mutual funds, the purest play is Fidelity Select Multimedia, which has almost three-quarters of its portfolio in media stocks. A more diverse alternative is T. Rowe Price Media & Telecom, which invests more than 80 percent in media and telecommunications. Both are no-load, low-expense funds that have ranked among the top performers in their sector over the past three and five years."

Site of the Week: Check cbs.marketwatch.com's new free Exchange- Traded-Fund (ETF) Center, which provides a collection of investment tools, performance calculators and rankings, as well as daily news, feature stories and columns. The ETF Center also offers a basic ETF screener, with screening by asset class, sector, style, sponsor, market cap or region.

Investor's Notebook is a digest of investment opinion from the world's leading financial advisers. It does not recommend any specific investments, and no endorsement is implied or should be inferred. For more information, contact the individual firms cited.