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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: Freedom Fighter who wrote (1385)	2/28/1999 7:11:00 PM
From: porcupine --''''>	Respond to of 1722

Analysts Warn About Blue Chips February 28, 1999 Filed at 1:54 p.m. EST By The Associated Press NEW YORK (AP) -- Investors trying to play it safe in the stock market these days may actually be taking a pretty big risk. That's the conclusion many analysts and money managers reach as they watch money pouring into two or three dozen big-name blue chips and the mutual funds that invest heavily in those stocks. As these ultraglamorous multinational and technology giants attract more and more investors, they have come to dominate one of the best known market indicators, the Standard & Poor's 500-stock composite index. Hundreds of other stocks, meanwhile, have been languishing for a year or more. This has led to dramatic ''divergences,'' in Wall Street parlance, which skew perceptions of what the market is doing and have many analysts predicting trouble. Enthusiasm for the Terrific Twenty has been fueled by severe international currency and debt problems. With the world in financial crisis, the reasoning goes, it's best to invest only in the strongest, most reliable growth companies. The trouble is, when almost everybody decides to do that, the price you have to pay for this seeming security soars. ''The cost of deflation insurance is very high,'' says Michael Goldstein at Sanford C. Bernstein & Co. Or in the words of managers of the Longleaf Partners Fund in their just-published annual report to shareholders: ''The S&P has never sold at today's elevated valuation levels. The market-weighted S&P index is selling at over 27 times current earnings, and several of the large companies that dominate the index sell at 60 times to 80 times earnings. ''Owners of this index have NO margin of safety between the price they are paying and the value of the businesses they own,'' write managers Mason Hawkins, Stanley Cates and John Buford. One reason this situation bothers professional money managers so much is the difficulty it has caused them in their efforts to keep up with the S&P 500. Contrary to the image of day traders merrily doubling or tripling their money on the Internet, many individual investors face the same problem. As the S&P 500 has pushed higher over the last couple of years, the average stock just hasn't done very well. ''While the majority of investors and advisers remain convinced the bull is alive and well, market statistics suggest otherwise,'' notes the advisory letter Dow Theory Forecasts in Hammond, Ind. ''The New York Stock Exchange advance-decline line, a running total of advancing stocks minus declining stocks, has recovered just 10 percent of its April-to-October downturn. Only 29 percent of NYSE stocks are trading above their 200-day moving averages. ''Eventually, the divergence between the S&P 500 index and the broad market will be resolved. Either the index will correct or the broad market will get in gear.'' Investors can do some things to protect themselves against the risks these analysts see. ''In our view, holding 10 percent to 20 percent of portfolios in cash is a prudent hedge,'' Dow Theory Forecasts declares. David Tillson, senior portfolio manager at U.S. Trust Corp. in New York, recommends ''looking beyond today's large-cap market leaders for investment value. Focus, he says, on companies whose stocks haven't soared to lofty levels -- ''less recognized names that appear to have fallen off investors' radar screens and are trading at levels where they have attractive risk-reward profiles.''