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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (38731)	1/6/2003 2:43:37 AM
From: Johnny Canuck	Read Replies (1) \| Respond to of 69983

Forbes Magazine He Likes Nortel! Friday January 3, 11:40 am ET By Andrew T. Gillies The market's emotional response to telecommunications stocks is revulsion. But a detached look at the numbers says that it's a sector poised to beat the market, says James Floyd of the Leuthold Group. From tulips to internet stocks, hot sectors have a long history of bringing misfortune to investors. But James Floyd, co-portfolio manager of the Leuthold Select Industries fund, hasn't lost faith in a sector-based strategy. As of December 2002. Floyd's Top Ten Industries 1. Telecom equipment 2. Telecom survivors 3. Systems software 4. Photographic products 5. Oil & gas equipment & services 6. Integrated telecom services 7. Multi-utilities and unregulated power 8. Oil & gas drilling 9. Networking equipment 10. Wireless telecom services "Our thesis is that the big moves are made by groups," Floyd says. "If you get the groups right, it will be much easier to get the stocks right." Leuthold Weeden Capital Management, which has $250 million in assets under management, started its Select Industries fund in June 2000, just as the bear market was starting to bite. Since then Floyd and comanager Steven Leuthold have built the fund's assets to $11 million. It has been rough sledding for the fund recently, and its return of -16% since inception seems nothing to brag about, except that a passive investment in the S&P 500 is off 35% over the same period. Floyd's selling pitch is quantitative analysis. He and Leuthold parse 2,000 stocks into 140 industry groups, which are then ranked according to 30 criteria. Most of the screening items are crunchily objective; they include such factors as earnings growth, cash flow (in the sense of net income plus depreciation), insider activity, relative strength, earnings estimate revisions and present versus historical valuations. But the pair add in some softer subjective scores, such as their assessment of economic or political risks affecting an industry. The 30 criteria are then grouped into seven broad categories: value, growth, contrarian, technical, judgmental, long-term price momentum and insider activity. Industry groups scoring highest by these seven measures rise to the top of the fund's shopping list. From there Floyd and Leuthold start prying out individual stocks using equally quantitative screens. The number-heavy approach insulates the Select Industries fund from getting burned by the sector flavor of the month. Variations on it are used to make the investment decisions in Leuthold's other two funds, its Core Investment fund, which earned an "A" rating from FORBES for downmarket performance, and its self-explanatory Grizzly Short fund. It also suits Floyd, 55, who followed Steven Leuthold from Minneapolis-based brokerage Piper Jaffray in the late 1970s, fleeing the life of a regional equity analyst. "I was never very good at knocking on doors and saying, ‘So how much are you going to earn this year?'" he recalls with a chuckle. Ever since his days at the University of Minnesota he had been more comfortable reaching investment conclusions using Compustat data stored on giant tape reels. The data moved to the desktop, but the quantitative approach stayed put. Right now Floyd's selection process has moved beaten-up telecommunications equipment stocks to the very top of his buy list. Among his favored stocks in this area are Corning (NYSE:GLW - News) and Nortel Networks (NYSE:NT - News). Twenty-seven other industry groups of Floyd's 140 have similarly garnered an "attractive" rating, the top tier of Floyd's scoring hierarchy. Half of these are technology groups. They scored well in growth, insider buying, long-term price momentum and the comanagers' subjective opinion. With decades of investing experience Floyd and Leuthold know that Wall Street tends to overshoot when times are flush and undershoot when times are tight. Given the heavy cost-cutting in the technology sector over the past few years, Floyd and Leuthold think that technology companies are poised to surprise for the better. Japan's Sony (NYSE:SNE - News) is now one of the fund's larger holdings. Sony (on the Big Board as depositary receipts) goes for 31 times trailing earnings. But its price/sales ratio of 0.6 falls below afive-year average of 1. That makes it attractive to Floyd. Another promising indicator for Sony is its enterprisemultiple, calculated by dividing enterprise value (market capitalization plus net debt) by earnings before interest, taxes, depreciation and amortization. For Sony this multiple stands at 7.3, low relative to a sector average of 9.5. The companies in the accompanying table are drawn from the groups Floyd currently deems "attractive." We picked them out by adding some criteria of our own: a share price above $3, a market capitalization above $100 million, price/sales and price/cash flow multiples below their five-year averages and long-term debt no greater than 80% of total capitalization. For a larger list of such stocks, go to forbes.com/floyd. biz.yahoo.com