Black Enterprise screens the market for core holdings with potential for solid returns
SOMEWHERE TRADING ON THE NASDAQ, NEW YORK OR American stock exchanges, hidden among the 30 Dow Industrials or the S&P 500, is your stock. It's an anchor your portfolio has been awaiting, the core holding you're banking on to help fund your kid's Ivy League education, spark up your retirement portfolio or chip in on the down payment for a new home. It's your stake in the economy, a slice of a corporation that's primed for growth, yet still something of a bargain. Management there is lean, harvesting a nice profit while at the same time, treating shareholders to substantial gains.
Sounds too good to be true, especially after a fantastic run by the market's sturdy blue chips? Well, before you start thinking it'll take a lifetime to unearth just that kind of investment, take heart. There's value to be found in the market, especially if you remember that shopping for a company worthy of your hard-earned money is in many ways no different than sifting through the aisles at the department store for a new coat. That's because your aims--the best quality on the market, a good price, favorable comparisons with other goods--are essentially the same whether you're scouting the mall or examining annual reports.
Still, scanning the roughly 9,300 stocks available takes a bit more calculation and quantitative work than a trip to the mall. To better focus on the best companies available, you'll need some way to narrow the number of stocks you're actually looking at. For just that kind of screening tool, we turned to Zacks Investment Research, a Chicago company that compiles financial records on publicly traded companies nationwide. By visiting Zacks' Web site (www.zacks.com), we downloaded Research Marvel, a screening software covering 6,063 companies and over 600 criteria that's available to the public for $600 yearly, complete with monthly financial data updates. While other similar programs are readily available on the net--such as www.researchmag.com--we found Zacks easy to use and extensive enough to meet our needs.
Before we downloaded the software from the Net and started plugging in numbers, though, we did a little homework. First, we looked at the overall stock market to gauge just how much shares are worth these days, and how expensive share prices are compared to historical averages. Then, to whittle the huge stock market down to a manageable size, we ran several screens and applied many of the criteria money managers use when they're selecting a portfolio. We looked for solid, steady companies with a record of delivering to shareholders. We looked for shares with good growth prospects that nonetheless remain reasonably priced, even after the stampede of new money into the stock market during the last couple of years. We also looked under the hood, checking to see how lean operations have been, and how management has been divvying up the wealth with shareholders.
At the end of our research, after running three screens, we came up with eight stocks with good prospects ahead. In charts accompanying this article, you'll also find stocks we deemed to be very capable runners-up, companies that could be equally rewarding in the months ahead. As we divulge the names of the eight stocks, we'll walk you through the screening process and some of our reasoning. That way, if you return to the market at a later date, you'll be able to use the very same logic.
Before we launch into the screens, two points bear repeating. Whether it's your first time buying shares, or you're looking for the latest addition to your bundle of investments, you should aim to find a stock you can hold on to at least two years--and probably more than that. We also recommend that your first stake in the stock market be made by buying into one or more stock mutual funds. Investing in one to three mutual funds spreads your money across many different stocks in a variety of economic sectors, essentially cushioning you from a lot of the spills that can wipe away a major part of your portfolio at any given time.
TAKING STOCK OF THE MARKET