From Money & Investing Update (WSJ) - January 9th:
Getting Going/by Jonathan Clements
Some No-Load Stocks Are Worth
Looking Into, Money Managers Say
Just because it's cheap doesn't mean it's worth buying.
A burgeoning number of companies sell their stock directly to the public,
allowing small investors on tight budgets to buy their first shares without ever
calling a broker. Sound appealing? Don't crack open your wallet quite yet.
According to Charles Carlson, who keeps tabs on these so-called no-load
stocks, there are 84 companies that will sell investors their first shares, up
from about 50 at year-end 1994. "The list is a good starting point," says Mr.
Carlson, editor of DRIP Investor, a monthly newsletter devoted to dividend
reinvestment plans. "But just because a company is on the list doesn't mean
you want to buy it."
Indeed, Mr. Carlson's list -- which includes 51 utilities, plus some tiny outfits
that even many professional money managers wouldn't have heard of -- is
hardly representative of U.S. industry. Moreover, some of the companies
will sell stock only to customers or to residents of the states where they
operate.
But for stock-market sleuths, there are some gems to be found. Or so say
three of the country's best-known money managers, Roger Engemann,
Fayez Sarofim and Dick Weiss.
I faxed each of them the list of no-load stocks and asked for their picks. The
criteria? I suggested they choose companies that -- while they might not be
screaming buys today -- would likely reward investors who bought a few
shares now, and then added to their account over the years.
Mr. Sarofim, the Houston money manager who runs $32 billion, including
the $460 million Dreyfus Appreciation Fund, scanned the list and came up
with three stocks: Exxon, Mobil and Procter & Gamble. Exxon and Mobil
expect no-load stock investors to ante up an initial investment of at least
$250, while at Procter & Gamble the minimum is $100.
Typically, no-load stock investors enroll in a company's dividend
reinvestment plan, so that their dividends automatically purchase additional
shares. Investors can also send in additional cash amounts. Many companies
allow plan participants to buy shares once a month. But Mobil and Procter
& Gamble accept optional cash payments twice a month, while Exxon
permits weekly investments.
"They're good, solid companies," Mr. Sarofim says. "They're all leaders in
their field. The yields on Exxon and Mobil are higher, so the dividend
reinvestment will work better."
Mr. Engemann, manager of the $470 million Pasadena Growth Fund, likes
both Procter & Gamble and another no-load stock, McDonald's. The two
companies may find it tough to grow rapidly in the U.S., but he reckons the
prospects abroad are bright. Indeed, Mr. Engemann's analysts are
forecasting healthy double-digit earnings growth for both McDonald's and
Procter & Gamble.
For an investor who plans to buy shares gradually, "these are ideal
companies," says the Pasadena, Calif., money manager. "You could
dollar-cost average into these companies for the rest of your life."
Our final two picks come from Mr. Weiss, co-manager of Milwaukee's
$1.2 billion Strong Opportunity Fund and $1 billion Strong Common Stock
Fund. His favorites? AirTouch Communications, the cellular-phone and
paging company, and Barnett Banks, the Florida banking powerhouse.
"AirTouch can be viewed as a cheap way to invest in international
telecommunications," Mr. Weiss says. "They own a lot of different pieces of
cellular companies abroad. We know inherently that they're valuable and
that they'll get cash flow from them. But the market doesn't know how to
value them."
And what about Barnett? "We're having this cyclical wave of consolidation
in the banking industry, which will ebb and flow," Mr. Weiss says. "Barnett
will probably be a good company to dollar-cost average into, because
they're only going to get stronger [in the Florida market], and eventually
they'll probably get taken over."
If you're intrigued by the idea of no-load stocks, be prepared for a few
hassles. To get some diversification, you'll need to buy at least a handful of
companies, which also means a fistful of paperwork. And don't expect
no-load to mean no-cost. DRIP Investor's Mr. Carlson says some
companies charge fees, though these costs are typically small and well below
what you would pay if you went through a broker.
Still interested? A good starting point is Mr. Carlson's list. You can get a
free copy by writing to DRIP Investor, 7412 Calumet Ave., Hammond, Ind.
46324. |
