Bank on the Future

8 New Funds Up More Than 15% in 2009 July 31, 2009

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Last year Grubb & Ellis AGA president Jay Leupp decided to do something a little contrarian: launch three real estate mutual funds in the course of six months. No doubt investors were skeptical. After all, at the time, retail housing data were horrendous. And consumer trends that had caused house prices to plummet and inventories to skyrocket were supposed to trickle into every corner of the sector.

“We had to be patient. It was harder to raise money,” says Leupp of his timing. But, he adds, “no question it allowed us to be very contrarian. It was an excellent time to pick stocks.”

What those skeptical investors may not have realized is that the funds were backed by a company with 50 years of real estate experience. Leupp, who likes to invest in companies with strong balance sheets and management teams, has access to Grubb & Ellis brokers across the country that provides him with keen insights about regional markets. And he and his team have been known to walk a mall or stop by a construction site to check up on a company. The Grubb & Ellis AGA Realty Income fund (GBEIX), launched a year ago, is up 29.7% in 2009, putting it in the top 4% of its Morningstar category. Two sister funds are also doing well.

Regardless of that performance, Grubb & Ellis offerings have never made the fund screen — until this week. We usually require a fund to have both a top-tier three- and five-year track record in order to make our lists. Obviously, that disqualifies every new fund. This week, we relax those standards and others to concentrate on funds that have been launched within the last 19 months. Since the offerings don’t have proven performance records we would suggest thinking twice before putting your money in one. This screen is more about keeping apprised of what is on the market.

This screen is a bit subjective. The eight funds on the table below are either run by a proven manager or by a firm expanding on its given specialty. They are just a sampling of the new launches. Indeed, Morningstar says 2,781 funds and share classes were launched since Jan. 1, 2008. Of those, 570 were brand-new funds vs. additional share classes of existing funds. To see spreadsheets listing both groups click here.

There are both pros and cons to investing in a new fund. A new fund can be a vehicle for a manager who is striking out on his own. New funds can also help a fund family plug a hole in its lineup or bring to the public a strategy it may have been implementing only for its institutional clients.

We’ve already hinted at the biggest problem: no performance track records. In addition, a fund manager may not be able to replicate his success on his own if he doesn’t have access to the same information he had at his previous employer. Independent firms may not be able to keep costs low on a new fund since it can’t use economies of scale to spread around its expenses.

“I think they are worth exploring,” says Jeff Layman, chief investment officer of BKD Wealth Advisors in Springfield, Mo. “But we would have a hard time investing in one that didn’t have a demonstrable prior risk-return profile.”

Auer Growth (AUERX) was a new fund we profiled last summer. It hunts for companies with 25% earnings growth, 20% sales growth and a price/earnings ratio below 12. After a shaky start, the fund is up 28.5% this year. And Bob Auer, the fund’s manager, is optimistic about the fund’s future. “We aren’t in the camp where these lows will be retested,” he says. “We always recover from a recession.”

The Criteria: The funds on our list have been launched since Jan. 1, 2008. Since the funds are new, we did not include our usual performance and fee criteria. However, we did favor funds from established managers or prominent fund families.This week we did allow load funds to be considered.

Fresh Faces
Source: Morningstar/Lipper Note: Data as of July 30, 2009 * Charges 5% load
Ticker	Fund	Assets ($ Millions)	YTD Return (%)	Morningstar Category	Iinception Date
BIGFX	Baron International Growth	20.2	20.2	Foreign Small/Mid Growth	12/31/2008
DODWX	Dodge & Cox Global Stock	580.4	580.4	World Stock	5/1/2008
GBEIX	Grubb & Ellis AGA Realty Income *	4.8	4.8	Real Estate	7/30/2008
MADMX	Madison Mosaic Small/Mid-Cap	1.0	1.0	Mid-Cap Blend	12/31/2008
MSMLX	Matthews Asia Small Companies	34.5	34.5	Pacific Asia ex-Japan	9/15/2008
RYGSX	Royce International Smaller-Companies	5.7	5.7	Foreign Small/Mid Value	6/30/2008
RPGEX	T.Rowe Price Global Large-Cap Stock	20.3	20.3	World Stock	10/27/2008
WAGOX	Wasatch Global Opportunities	89.9	89.9	World Stock	11/17/2008

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3 Stocks the Bosses Are Buying July 30, 2009

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If America's bosses are leading by example this summer, investors might want to sell shares. According to analysis by Form 4 Oracle, named for the stock transaction reports that executives, board members and major stakeholders must file with regulators, the ratio of companies with net insider buying to those with net insider selling is the most bearish it has been in two years.

Insider selling generally isn't worrisome. Bosses have plenty of reasons to periodically unload the stock they're given as pay. Sometimes they diversify their holdings, or free up money to buy a house, or, I don’t know, fill an in-ground swimming pool with cognac and tears of the working class. Still, the four-week buy/sell ratio, which was more than 60% at the start of 2009, recently fell to 33%. A drop like that suggests insiders are either strapped or skittish, or both.

A few are still buying, of course, and whereas insiders have many reasons to sell, they have only one good reason to buy. Well, maybe two. The first is that a contract they signed when they joined the board mandates a minimum level of stock ownership. The second and more common reason is that they think the stock is going up. As insiders, they’re in a good position to predict that sort of thing.

Big stock purchases bode well, but there’s more than size to pay attention to. A string of buys by multiple insiders bespeaks agreement. Executives with chief-this-or-that in their title tend to fare better on stock trades than directors and major stockholders, long-term studies show. Naturally, purchases made by insiders of any type who’ve profited nicely from past trades are worth noting. Below are three companies with recent buys of each of these types.

High-Level Buy: Mentor Graphics

Mentor Graphics (MENT) stock has lost half its value in a year. In late June, the company’s president bought 20,000 shares at $5 and change. Mentor makes electronic design automation software, and has suffered a drop in demand along with chip makers over the past year. Two years ago the company earned a dollar per share. If it can make half that next year -- early forecasts call for earnings of 52 cents a share -- then the stock trades at a reasonable 13 times earnings. The company is only modestly indebted.

Multiple Buys: Orexigen Therapeutics

Orexigen Therapeutics (OREX) makes no money. I repeat: no money. So why have nine different insiders loaded up on stock this month? The company is a drug developer focused at the moment on a single pill called Contrave. It’s a weight-loss drug made by combining the antidepressant Wellbutrin with an addiction-suppressing drug called naltrexone. Phase 3 trials of the pill -- those are the ones that typically come just before a request for approval -- wrapped up earlier this summer. Subjects lost heaps more weight with Contrave than with a placebo, and reported few side effects that would give regulators pause, according to Canaccord Adams, an investment bank. Canaccord envisions Orexigen booking modest sales in 2011, ramping up to more than $250 million by 2014. That’s roughly what the company sells for today, net of its cash.

Sizable Buy: Lions Gate Entertainment

Corporate raider Carl Icahn is loading up on shares of Lions Gate Entertainment (LGF). The small, quirky film studio has grown its sales in recent years on a mix of commercially if not societally successful torture porn from the "Saw" and "Hostel" franchises; self-aggrandizing documentaries from Michael Moore and Bill Myers; and a French nature film with marching penguins that, unforgivably, made me cry. Expect Icahn to badger Lions Gate management in the press about failing to sufficiently unlock stockholder value (that is, boost the stock price). Based on Lions Gate’s sales, the stock looks cheap. Profit margins are dismal, though. Management is planning a leaner film slate for next year and to ramp up television production revenues to smooth out swings in its movie fortunes. Investors should probably wait for a sustainable pick-up in profits before joining Icahn as an shareholder.

3 Stocks for a Rebounding Economy July 29, 2009

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U.S. stocks have soared since March on signs the recession is abating. Either that, or the recession is abating because stocks have soared since March. It's difficult to tell growth from froth when the former is measured chiefly in terms of how much consumers spend. The past decade, after all, produced a flood of consumer spending, but it was paid for by asset bubbles (two for stocks, one for houses) and a rise in borrowing, even while household incomes shrank after inflation.

Supposing recovery has truly begun, though, stock investors might want to identify companies that are poised to regain the most. These are companies that: 1) were making good money before the recession, unlike, say, Ford (F); 2) saw sales plunge as a direct result of the recession, unlike thriving Apple (AAPL); 3) have had only modest stock recoveries this year, unlike, again, Apple; and 4) haven't issued new stock so liberally that each outstanding share is now vastly diluted in value, as have several big, troubled banks. I recently searched for just such attributes while keeping an eye out for dividends but not requiring them. Below are three companies that turned up.

Boeing

It's possible, I suppose, that the world has discovered a better means of long-distance passenger travel than the jumbo jet, and that no one has told me yet. If that's not the case, though, Boeing (BA) seems underpriced. The company carries a lower stock market value today than at the end of 1996, even though sales and profits have about tripled since then. Even a 4% dividend yield hasn't enticed stock buyers to lift shares higher than their current price of nine times forecast 2009 earnings. True, the company's next-generation, fuel-efficient Dreamliner was supposed to be in the air two years ago, but Boeing is busy manufacturing more than just excuses. Sales of existing planes and military hardware are expected to increase 11% this year. As for the Delayliner, it's still two years ahead of Airbus's competing model.

DuPont

DuPont (DD) sells industrial chemicals, electronic innards, construction materials and more in 70 countries. Since many of its wares are primary goods used by manufacturers, it should be among the first companies to show signs of improvement during a broad expansion. Last week the company reported a 61% plunge in second-quarter profit on double-digit sales declines in most product categories. Management reckons third-quarter sales will fall short of year-ago levels, too, and that growth will resume in the fourth quarter. Shareholders collect a meaty 5.5% dividend while they wait. Payments will likely take up the bulk of this year's depressed profit, but look more affordable relative to early forecasts for next year, which call for 15% growth in earnings per share.

Carnival

Perhaps the economy is a long way from producing a leisure boom. Sales for Carnival (CCL), a cruise operator, are forecast to fall 11% this year. But trends are starting to look a bit less ugly. According to Wedbush Morgan, an investment bank, prices for cruises booked for the third quarter, while still 15% lower than nine months ago, have increased over the past 10 weeks. At the very least, that suggests that those so inclined should book cruises soon. At most, it warrants a purchase of the stock. Carnival carries an ambitious debt load, but a manageable one. Investors no longer need worry about management suspending the dividend; it did so last fall. The shares sell for less than 14 times earnings, and Carnival, while producing nothing near a banner year, is doing better than expected. Earnings per share have beaten forecasts in its past three quarters by an average of 35%.

3 Stocks With Accelerating Growth July 28, 2009

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Few companies are growing their sales at the moment. Even fewer are growing them faster now than they have in recent periods. Nonetheless, a search for companies whose products and services are in suddenly fierce demand turned up a jam maker, a superhero specialist and a small-town nursing agency.

Standard & Poor’s says about 200 members of its 500-stock index have reported second-quarter financial results, and that only a quarter of these increased their sales vs. a year ago. Accelerating sales growth is rarer still, since even successful companies tend to grow slower as they age. Sometimes they succeed so thoroughly that they saturate their potential customer base (for example, Microsoft (MSFT) in 2004, with a 96% share of the operating system market), and sometimes they struggle to protect their customer base from competitors (for example, Microsoft today, with an 88% share of the operating system market).

For the companies below, something is going unusually right. Either a new product has caught on with customers or a longstanding one has gained appeal due to outside events. Whatever the cause, stock investors should favor companies with quickening growth, provided their share prices seem reasonable.

J.M. Smucker (SJM)
For a 112 year-old concern, Smucker looks lively. In its fiscal fourth quarter ended April 30 the company increased sales 9%, or 81% including the contribution from Folgers coffee, which it bought in November 2008. Adjusted profit for the quarter swelled 40% to $1.02 a share. Wall Street had expected just 63 cents a share. Packaged food sellers in general have done well of late, with Americans eating more meals at home to cut costs. Smuckers sells staples like Hungry Jack pancake mix, Pillsbury rolls, Crisco shortening and of course its namesake peanut butter and jam. Coffee seems an especially strong performer for Smuckers. During the four weeks ended June 19 industry coffee sales increased less than 1%, while sales of Smuckers' coffees, including Folgers and Dunkin’ Donuts beans and grounds, rose 7%. The stock seems fairly priced at 14 times earnings and it carries a dividend yield of 2.8%. One mildly negative sign: With shares up 17% this year, company insiders have been cashing in stock options of late.

Marvel (MVL)
This year was supposed to prove a difficult one for Marvel, since more than 30% of its sales come from economically sensitive consumer products based on its comic book heroes, and since none of the company’s sure-thing film franchises (Spiderman, X-Men) have releases scheduled. But Marvel’s first-quarter sales shot 75% higher on demand for "Iron Man" and "The Incredible Hulk" on DVD. Analysts still expect full-year earnings per share to shrink to $1.35 from $2.61 last year. That puts shares at a worrisome 29 times 2009 earnings. Wall Street’s early forecast -- guess, really -- is that 2010 earnings will rebound to $2.06. Even that figure puts today’s stock price at 19 times earnings -- pricey. Encouragingly, Marvel has topped analysts’ earnings forecast by an average of 36% over its past four quarters. But it will have to keep the upside surprises coming to justify the valuation.

LHC Group (LHCG)
Americans are growing fatter and living longer. Together, the two trends suggest steady growth in demand for everyday care for conditions like diabetes, high blood pressure and chronic pain. LHC Group dispatches aides to patients’ homes to help with housekeeping, bathing and meal preparation, and sends nurses to help with health care. The company also operates long-term care and rehabilitation centers. It targets rural markets, which tend to be underserved by other nursing agencies, and which skew older than cities. All is moving in the right direction for LHC at the moment except for its stock price. Sales are forecast to increase 33% this year and earnings per share 30%. Debt is negligible. But shares have lost 31% year to date. An ongoing government review of the company’s Medicare business, expected to wrap up by the end of the third quarter, is likely making stockholders nervous, although analysts believe the matter relates to documentation problems, not inappropriate levels of service. Also, health-care companies of all sorts have depressed valuations at the moment as Congress ponders a greater role for government in medicine, at the possible expense of business. Perhaps the fears are already priced into the stock and then some. It goes for just 11 times earnings.

10 Funds Staging a Comeback July 24, 2009

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Adam Bold, the founder of independent advisory The Mutual Fund Store, is keeping what he calls a “bounce-back” list — tabulations of how some of his favorite funds have performed since stocks hit their lows earlier this year and late in 2008. As the Dow Jones Industrial Average hits and then surpasses the key 9000 level, Bold wants to sniff out the offerings that are successfully riding that run-up — and those that aren't.

“The last six months we’ve been trying to figure out which managers just hit a bad patch last year and which managers have just gone bad,” says Bold.

Spotting the difference between a temporary lull in performance and a more serious setback is a tough task for investors like Bold. Even the industry’s best managers inevitably have a down year or two when the stocks they own fall out of favor with the broad market. Many investors stick by these pros in the hopes they will regain their momentum. However, not all managers can stage such a recovery. The industry is littered with top-tier funds that fell into the basement of their categories and stayed there — for years.

This week SmartMoney's fund screen tries to handicap which offerings are actually back on track. We started with a universe of 1,685 equity funds that had above-average 10-year track records. We then narrowed that group to 344 by looking for funds that were in the bottom 40% of their respective categories during the three-year time period. In addition, the funds had to beat the year-to-date performance of the S&P 500. Finally, we favored funds with proven managers, ones that featured stock portfolios poised for growth and we made sure each offering did well coming out of the last bear market. Below are 10 funds we think could be on the comeback trail.

Of course, there is no guarantee that any of the funds will regain its former glory. Indeed, some funds in the table below, like Dodge & Cox Stock (DODGX) and Oakmark Select (OAKLX), made this screen the last time around in December, but have yet to stage the comeback we anticipated. By using the criteria mentioned above, however, we are aiming to increase our chances of sticking by a potential winner instead of selling at the wrong time. Two funds we previously wrote about that did stage comebacks are Al Frank (VALUX) and Wasatch Small Cap Growth (WAAEX). Both fell off the list this time due to good returns.

Investors should be wary about focusing on past returns. Three- and five-year returns, for example, can easily be skewed by an up or down year. Last year’s downturn was so severe that it even impacted the trailing 10-year returns of some funds. It may be more revealing to study individual 12-month spans. In his analysis, Bold treats 2008 almost as an anomaly since he thinks good managers got whacked when hedge-fund-type outfits were forced to sell stocks.

“What we had last year was a liquidity problem,” says Bold, who places more emphasis on how funds did after the 2001-02 bear market. “What [sophisticated investors] wanted to sell was their CDOs [collateralized debt obligations] to meet margin calls. But they couldn’t, so they sold whatever was the most liquid. The best stocks had liquidity.”

Ultimately, says Bold, investors need to weigh a poor performance against any emotional attachment they may have to a fund and its manager.

“When you have a manager who has done a great job for a long period of time you can give him the benefit of the doubt for longer than a manager who has [a spotty track record],” says Bold. “But ultimately you can’t fall in love with anybody.”

The Criteria: The no-load, equity funds on our list are in the top 40% of their Lipper categories over the trailing 10-year period and in the bottom 40% during the trailing three-year period. The funds are up at least 10% in 2009. We also added in some subjective criteria: The funds must have done well vs. the S&P 500 coming out of the last bear market and they must be run by companies or managers respected by advisors we talk to throughout the year. The funds are open to new money, require a minimum under $5,000 and charge an annual expense ratio under 1.5%.

Comeback Kids
Source: Lipper Note: Data as of July 23, 2009
Ticker	Fund	Year-to-Date Return (%)	3-Year Average Annual Return (%)	5-Year Average Annual Return (%)	2003 Return (%)
BRUFX	Bruce	21.0	-3.6	6.6	66
CHCGX	Chesapeake Core Growth	23.3	-7.0	-2.5	42
DODGX	Dodge & Cox Stock	12.5	-9.9	-0.7	32
MFOCX	Marsico Focus	12.0	-4.7	1.3	31
MUHLX	Muhlenkamp	15.5	-10.9	-3.0	48
OAKLX	Oakmark Select	27.1	-6.7	-1.7	29
PGVFX	Polaris Global Value	18.0	-10.2	0	47
SLASX	Selected American Shares	13.6	-6.2	0.4	30
TRVLX	T. Rowe Price Value	17.7	-6.0	0.7	30
WTEIX	Westcore Growth	18.5	-3.6	-0.4	30

Recipe

Fund Type = *
Annualized 3-Year Return (%) = Display Only
Rank in Classification (%) (3 year performance) >=60
Annualized 10-Year Return (%) = Display Only
Rank in Classification (%) (10 year performance) <= 40
Expense Ratio <= 1.5%
Load Fund (type) = No Load
Minimum Initial Investment <= $5,000
Open to New Investors = Yes
Total Net Assets ($ millions) >= 50
Year-to-Date Return (%) >= 10
* Screen does not include fixed income offerings. The final list was generated by favoring funds with managers recommended by advisors throughout the course of the year. Performance during the last bear market was also considered.

3 Stock Alternatives to Small Business July 23, 2009

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Now is a frightening but opportune time to start a small business. Yes, consumers remain reluctant to spend, but a glut of cheap offices, equipment and workers should keep expenses low. For laid-off workers who have ample savings but few job prospects, self-employment might easily beat no employment. For those who have jobs and secretly wish to own a small business like a Laundromat, restaurant or fitness center, but can’t walk away from their paycheck, the stocks below might hold appeal. Each is a successful player in a business category typically favored by entrepreneurs, and investors can buy in with a purchase of just a few shares, rather than a mammoth bet on a start-up.

Share ownership has advantages over full-company ownership, but some disadvantages, too. The chief advantages: You don't have to show up for work, you can pick from thousands of already-profitable companies, you risk only a modest sum of money and you can change “jobs” several times a year. The disadvantages: There's no one to issue orders to except your stockbroker, you have little say in how the business is run and you have to wait for dividend checks or sell shares to get paid. Also, share-issuing companies generally aren’t small businesses, relative to mom-and-pop operations. That means their potential growth rates aren’t quite as high. And finally, any stock represents a business that someone decided to sell to the public rather than keep for themselves, so investors must consider carefully whether the company’s growth prospects are still bright and its current price fair.

Laundromat

Mac-Gray

(TUC)
Market value: $169 million
Trailing 12-month sales: $379 million

This isn’t your neighborhood Suds n’ Duds. Mac-Gray has commercial contracts with universities, hotels, military bases and apartment buildings. It manages more than 88,000 laundry rooms in 43 states with an emphasis on high technology. Customers get energy-efficient, high-speed machines that report their own maintenance needs, allow users to check availability online and accept payment via pre-paid cards. Mac Gray gets a predictable stream of cash flow, thanks to long-term contracts and a 95% yearly contract retention rate. Industry growth is perhaps limited; America’s clothes aren’t likely to need much more washing next year than this year. But Mac Gray has plenty of opportunity to take market share from smaller players. The company and its two largest rivals control just one-third of the fragmented laundry management business.

Restaurant

Famous Dave's

(DAVE)
Market Value: $54 million
Trailing 12-month sales: $140 million

Dave’s is known for its Big Slab — a rack of 12 pit-smoked, sauce-slathered ribs. It also sells brisket, chicken, fish and sandwiches. On April 23 the company reported that its first-quarter profit jumped 58%. The improvement came from lower ingredient costs, not rising sales, but the chain was growing nicely until last year when consumer spending plunged. Last quarter management used its cash flow to pay down debt, but the chain has room to expand if restaurant traffic picks up. At last count it had 174 restaurants, with 47 owned by the company and the rest franchised. Buffalo Wild Wings (BWLD), another publicly-traded chain whose diners get their fingers messy, recently opened restaurant No. 600. Its management says the goal is to eventually hit 1,000.

Fitness Center

Life Time Fitness

(LTM)
Market Value: $948 million
Trailing 12-month sales: $792 million

Gym memberships are one of the first things consumers tend to cut back on when money gets tight. But in the first three months of 2009 Life Time Fitness, which operated 83 centers in 18 states at the time, managed to increase its sales 12% versus the same period in 2008. The company is scheduled to report second-quarter results Thursday, July 23. Investors should be cautious: Oppenheimer analyst Brian Nagel believes membership growth might recently have slowed and that the stock, which has tripled in price from its March low, might have rebounded too far too fast — though he still rates it as Outperform for long-term investors.

3 Stocks With Bigger Dividends July 22, 2009

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For dividend investors, the U.S. stock market is starting to look stingy. The S&P 500 index has rebounded more than 40% since early March, while its underlying dividend payments are forecast to fall 23% this year. The result is a yield of just 2.3%.

That’s not as skimpy as the 1.6% yield the index offered over the bubbly decade ended 2007, but it's well below the average yield of nearly 5% that U.S. stocks provided over the past two centuries.

Nonetheless, careful shoppers can still find handsome, growing dividends. Payment trends for the S&P 500 index perhaps paint too grim of a picture, because the index assigns significant weight to the giant banks that have eliminated dividends this year to shore up capital. Viewing all 500 companies as equals, more have increased payments this year than have decreased or cut them.

The three companies below have yields above the index’s 2.3%, recently increased their payments and are what Standard & Poor’s calls Dividend Aristocrats: companies that have boosted their payments in each of the past 25 years.

Clorox

(CLX)
Dividend yield: 3.4%
Dividend increase: to $2.00 from $1.84 in June

Beyond its namesake bleach, Clorox sells Glad trash bags, Brita water filters, Kingsford charcoal, Hidden Valley salad dressing and much more. More than 80% of company sales come from brands that are the No. 1 or No. 2 sellers in their category. Since the products aren’t terribly sensitive to the economy, Clorox is growing despite the current recession. Sales and earnings per share for its fiscal year ended June increased 3% and 17%, respectively.

Supervalu

(SVU)
Dividend yield: 5.2%
Dividend increase: to 70 cents from 69 cents in May

America’s third-largest grocer, Supervalu ran more than $44 billion through its sales registers over the past year, yet it has a stock market value of just $2.8 billion. That’s likely because the company owes a worrisome $8 billion, and sales and earnings per share are expected to fall 5% and 25%, respectively, in its current fiscal year. Simeon Gutman, who covers the stock for Canaccord Adams, an investment bank, recently changed his recommendation to “buy” from “hold,” noting that Supervalu has a new chief executive, is well-positioned for a turnaround and has no major debts coming due until 2011. However, until the company’s financial results show clear signs of improvement, the stock is perhaps best left to speculative investors rather than those living off their dividends. Supervalu reports fiscal first quarter results Tuesday, July 28.

Johnson & Johnson

(JNJ)
Dividend yield: 3.3%
Dividend increase: to $1.96 from $1.84 in April

Johnson & Johnson is three businesses in one. It sells consumer products like Band-Aids, Tylenol, Mylanta antacid; prescription drugs like Risperdal for schizophrenia; and medical devices like sutures and stents. Drugs have been the weak point lately due to increased generic competition, but analysts say the company’s development pipeline looks robust. Earnings per share are forecast to remain largely unchanged this year but resume growth next year. JNJ has negligible net debt, suggesting its dividend is plenty safe.

3 Stocks Back from Near-Death July 21, 2009

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U.S. stocks have had a remarkable run since spring. The S&P 500 index topped 950 Monday after closing below 680 in early March – a 40% gain.

Recoveries for the three companies below have been even more dramatic. Each dropped below $3 a share this year — a level that can send institutional investors fleeing and mark the beginning of a downward spiral toward delisting. And each has since soared back to a double-digit price.

Bank of America

(BAC)
52-week low: $2.53 on Feb. 20
Monday's close: $12.24
Gain: 384%

Even after its recent bounce, Bank of America stock sells for 75% less than it fetched at the peak of the U.S. stock market in October 2007. The price of a single share overstates the discount a bit, since Bank of America has issued gobs of new stock over the past year. The bank's overall market value is about 55% below its October 2007 level. Deciding whether shares today are cheap might require as much faith as science. Analysts who've sweetened on the stock in recent months say it's attractively priced relative to the bank's book value and “normalized” earnings. But whether today's book value is accurate depends on how likely borrowers are to pay back their bank loans in coming quarters, which depends on a variety of unknowable factors, including the unemployment rate and house and stock prices. As for the term “normalized” earnings, it begs the question of what's normal: the giant profits banks earned during the stock and real estate bubbles that preceded the current recession, or something far less?

Palm

(PALM)
52-week low: $1.14 on Dec. 2
Monday's close: $15.18
Gain: 1,232%

What a difference a hit phone can make. Palm seemed headed for financial oblivion late last year. With its Treo looking dated next to Apple's (AAPL) iPhone and Research in Motion's (RIMM) latest BlackBerry models, Palm's share of the U.S. smartphone market had plunged to 8% from 25% since 2005, according to Needham & Company, an investment bank. In January, Palm unveiled the Pre, with a new operating system, an iPhone-like touch screen and something the iPhone lacks: a slide-out keyboard. Analysts laud the new phone, which began selling in early June, and say sales figures for Palm's fiscal first quarter, which runs through August, are likely to impress. But several question whether the stock has gotten ahead of itself. Kevin Dede of Jesup & Lamont, an investment bank, initiated coverage on the stock Monday with a Sell recommendation. He's “enthralled” by the phone but suspects Palm is replacing plenty of defective ones, based on his informal inquiries at stores and a survey conducted at PreCentral.com, an enthusiast site. Dede thinks this quarter's profit might suffer as a result, but that Palm will eventually fix any manufacturing problems.

Cooper Tire & Rubber

(CTB)
52-week low: $2.96 on March 9
Monday's Close: $12.88
Gain: 335%

Incorporated during the Great Depression, Cooper presumably knows how to weather a difficult economy. Good thing: U.S. consumers are buying cars at an annual pace of 10.1 million a year, down from an average of 16.8 million from 2000 to 2007. Last year Cooper posted a giant loss. This year it's expected to earn a small profit, but with a continued decline in sales. From here, though, tire sales seem likely to rise. Either the economy will improve and new car sales will pick up, or consumers will need to replace bald tires on their old cars. Next year, analysts estimate (guess, really) that Cooper will earn 99 cents a share. That puts the stock's recently inflated price at a still-reasonable 13 times earnings. Shares come with a 3.4% dividend yield.

3 Stocks Back from Near-Death July 21, 2009

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U.S. stocks have had a remarkable run since spring. The S&P 500 index topped 950 Monday after closing below 680 in early March – a 40% gain.

Bank of America

(BAC)
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24 Low-Cost Funds Up 20% or More in 2009 July 17, 2009

Posted by Jack Hough in : Uncategorized , comments closed

Investors in China-focused funds had a rude awakening last year: After two years of 50%-plus returns investors bailed on the country as its economy showed signs of cooling off during the global recession. According to Lipper, the average China offering lost 52.7% in 2008, leaving a wake of battered and cheap stocks.

Matthews China (MCHFX), a fund that has been investing in the country for over a decade, took a sizable hit during that time, slipping 48%. This year, however, has been a different story. China has implemented a new stimulus plan and banks there are starting to lend at greater levels. During the second quarter, the Chinese economy grew by almost 8% and the investors who once abandoned the country started to return.

For Matthews China, the turn of events is proof that by sticking to its best picks and buying some others on the cheap during the downturn, it would be duly rewarded. The fund is up 44.8% year-to-date. Richard Gao, the fund's lead portfolio manager, thinks that performance is sustainable, especially given the fact that the valuation on many stocks is still considerably low. China stocks, he says, went from trading at a rich 35 to 38 times earnings at the peak in 2007 to around 15 times earnings late last year.

Matthews China and its sister fund Matthews Asia Pacific (MPACX) are just two of the funds, which make our screen of funds that have posted at least 20% gains in 2009. Typically, we don't screen for such short time periods. (We don't want to encourage performance chasing or reward a one-hit wonder.) So, the funds also have to be consistent top-performers over the trailing three- and five-year time periods. That took us from a universe of 1647 funds and share classes down to 185. Then we sought out those funds that charge below-average fees. Ultimately, we were left with 24 funds.

If investors take a close look at the list below, they can pick out an interesting trend. Most of the funds fit into at least one of four general categories: focused, technology, small caps and emerging markets.

Now the question is, can the rally that boosted those categories continue? Earlier this year, many market experts were expecting a pullback. Now, though, the sentiment seems to be changing towards a slow but steady run-up. "We think we are in the early stages of an economic expansion, but we still have a ways to go," says Christina Bergeron, an investment officer with Bryn Mawr Trust Wealth Management outside Philadelphia.

If Bergeron's prediction is correct it could produce a tricky stock-picking environment for more aggressive focused funds. The performance of these funds -- what we define as offerings with fewer than 50 stocks in their portfolios -- can be made or broke by one or two stocks. Yacktman Focused (YAFFX), which owns just 26 stocks, is Morningstar's top-ranked large-cap value fund over the trailing one-, three-, five- and 10-year time periods. It's up 32.6% this year due to strong performance of stocks like AmeriCredit (ACF), Liberty Media (LINTA), Microsoft (MSFT) and Dish Network (DISH).

The rally also lifted small-cap and tech funds. That follows history: these niches tend to do well during market recoveries. Now, these funds are benefiting from decent corporate earnings and investors' newfound appetite for risk.

Also risky but full of potential are emerging markets funds like Matthews China. These funds have gotten a boost from investors who are once again comfortable taking on some riskier -- yet potentially more rewarding -- plays. Lipper says the average emerging markets fund gained 34.2% during the first two quarters of 2009.

Matthews China has done well by adhering to a theme it has championed for several years: China's emerging middle class. While some competitors focus on energy and commodity-related stocks, Gao favors consumer-oriented names. That means he is getting decent performance without the risk and volatility that comes with commodities and energy.

"We try to ignore the noises in the market for the one-quarter or six-month [periods]," says Gao. "If you take a look at the portfolio you won't see many cyclical or commodity names. We think growth will be more and more reliant on domestic demand."

The Criteria: The equity funds on the table below have gained at least 20% in 2009. The funds also have track records during the trailing three- and five-year time periods that put them in the top 20% of their Lipper categories. They are open to new money, require a minimum investment of less than $5,000 and charge an annual expense ratio of under 1.5%. As usual, we didn't include load funds.

Riding the Rally
Source: Lipper Note: Data as of July 16, 2009
Name	Ticker	Assets ($ Millions)	YTD Return (%)	3-Year Average Annual Return (%)	5-Year Average Annual Return (%)	Expense Ratio (%)
Baron iOpportunity	BIOPX	121.6	28.65	0.44	4.53	1.42
Columbia Acorn International	ACINX	2814.0	23.60	-1.37	8.90	0.96
Columbia Select Large Cap Growth	UMLGX	980.5	20.66	-1.57	2.62	1.03
Delafield	DEFIX	495.10	22.05	-2.08	3.18	1.34
Dreyfus Small Company Value	DSCVX	147.0	27.52	2.85	4.43	1.23
Fidelity OTC	FOCPX	4277.4	30.98	2.81	4.11	1.06
Fidelity Real Estate Income	FRIFX	416.5	21.48	-5.43	-0.18	0.94
Fidelity Select Software & Computer Services	FSCSX	671.6	27.19	4.50	6.62	0.87
Fidelity Select Wireless	FWRLX	385.9	42.19	2.64	7.05	0.95
Janus Overseas	JAOSX	5848.4	43.04	4.35	15.13	0.90
Matthews China	MCHFX	1565.0	44.77	20.37	20.02	1.23
Matthews Asia Pacific	MPACX	161.6	23.63	1.19	7.70	1.23
Old Mutual Growth	OBHGX	307.3	24.02	-2.68	2.55	1.10
Old Mutual Columbus Circle Tech. & Comm.	OBTCX	104.2	33.26	4.20	5.07	1.45
Parnassus	PARNX	263.9	22.76	0.86	1.49	0.99
Royce Heritage	RGFAX	115.3	23.02	-3.06	4.19	1.50
Royce Low-Price Stock	RYLPX	1974.7	21.94	-2.91	3.05	1.49
Rydex NASDAQ-100	RYOCX	452.5	24.56	0.95	1.31	1.30
T. Rowe Price New Asia	PRASX	3053.5	56.23	11.07	17.16	0.96
T. Rowe Price Media & Telecommunications	PRMTX	1135.5	28.28	1.65	8.60	0.90
TCW Small Cap Growth	TGSCX	113.8	28.81	1.77	6.26	1.20
USAA Precious Metals & Minerals	USAGX	1099.3	22.71	9.60	20.12	1.19
Yacktman Focused	YAFFX	196.9	32.60	6.27	5.91	1.25
Yacktman	YACKX	550.6	28.20	3.79	4.45	0.95

Recipe

Fund Type = Global/International *
Annualized 3-Year Return (%) = Display Only
Rank in Classification (%) (3 year performance) <= 50
Annualized 5-Year Return (%) = Display Only
Rank in Classification (%) (5 year performance) <= 50
Expense Ratio <= 1.5%
Load Fund (type) = No Load
Minimum Initial Investment <= $5,000
Open to New Investors = Yes
Total Net Assets ($ millions) >= 50
Year-to-Date Return (%) = Display Only

* Funds had to invest around 40% of their assets in the U.S. to be considered.

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8 New Funds Up More Than 15% in 2009 July 31, 2009