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Managing a 'soft landing'
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September 1, 2000: 7:54 p.m. ET
Financial services, techs top money managers' lists as economy slows
By Staff Writer Franklin Paul
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NEW YORK (CNNfn) - Experts describe the U.S. economy's controlled, comfortable slowdown as a "soft landing," but it's a good time for investors to take a hard look at their investment portfolios.
For the second time in a decade, Alan Greenspan, chairman of the Federal Reserve, has smoothly reined in the nation's strong economy using a combination of cautionary words and well-timed interest rate hikes.
 The key is that Greenspan and the other central bank governors have kept economic growth in check without stirring up inflation. This so-called "soft landing" has created a fiscal environment where businesses feel comfortable borrowing money to fund expansion, while at the same time consumers think frugally about their purchasing options.
"We've got a good economy and inflation remains in check," Bryan Piskorowski, market analyst at Prudential Securities, said.
By raising interest rates over the past year, the government has curtailed consumers' urge to splurge, sending ripples of economic pain though sectors that rely on shoppers routinely flocking to the nearby mall.
"The rest of the economy is pumping along pretty well, but the consumer has slowed dramatically and that is really the key to the Fed's strategy --to get the consumer to slow down," said Ron Hill with Brown Brothers Harriman.
With gross domestic product seen at roughly 3.5 percent growth in this year's second half, and between 3 percent and 3.5 percent growth next year, money managers and investment experts say that the stock market has already picked up on the economy's optimistic outlook.
"It's kind of a nirvana - it's perfect," Edward Adatepe, chief investment office of MDL Capital Management in Pittsburgh, said of the economy's current pace. "It's fast enough that corporations' earnings can keep growing, but it's slow enough that we are not going to generate inflation."
"In that environment, we think that stocks can do well, and we would be in some of the same sectors that have done well (recently)," he added.
Technology widely seen as safe bet
Like other money managers, Adatepe believes that certain technology, financial services, and health care sector stocks will perform well in coming months.
Some technology sectors, namely semiconductors and Internet Infrastructure companies - those building the tools to expand the reach of the global computer network - are somewhat immune to Interest rate shifts, some experts said.
Combine that fact with the weed-like growth of handheld computers and an annual late-year surge in consumer demand for computers as holiday gifts and school tools, and tech stocks are again in vogue.
 "Certainly technology is something that we are focusing on, and telecommunications has tremendous amount of growth opportunity," said Susan Coleman, a senior vice president at David L. Babson & Co., in Cambridge, Mass.
Money managers said they expected strong performance from chip makers such as Intel (INTC: Research, Estimates), and PMC Sierra (PMCS: Research, Estimates), infrastructure concerns Cisco Systems (CSCO: Research, Estimates) and Lucent (LU: Research, Estimates), and Internet software leaders Oracle (ORCL: Research, Estimates) and Red Hat (RHAT: Research, Estimates).
While many once-high-flying Internet companies are struggling to stay alive, blue chip tech stocks like Intel, Oracle, and Sun Microsystems (SUNW: Research, Estimates) are expected to boost profitability by more than 30 percent this year.
In addition, managers are giving a collective thumbs-up to JDS Uniphase (JDSU: Research, Estimates), another infrastructure company, which sells its fiber-optic parts and lasers as demand for networks to carry large volumes of data increases.
Feeling good about health care, financial services
Experts also warmed to health care stocks, strong earnings performers that tend to hold up well at the end of interest rate-tightening cycles.
"Health care has been a real positive area for our portfolios," Coleman said of her firm's Private Client group. "Health care in particular has the earnings growth that has been sustainable for a long time. That's an area where we always feel comfortable."
Drug makers Pfizer (PFI: Research, Estimates) and Merck (MRK: Research, Estimates) and medical device maker Guidant (GDT: Research, Estimates) are expected to do well though end of the year, they said.
Money managers also stood behind well-managed financial services companies, which have diversified products that assist companies and individuals in ways to manage investment. Experts backed names such as J.P. Morgan, Citibank (C: Research, Estimates) and American Express (AXP: Research, Estimates).
MDL Capital Management's Adatepe championed utility companies such as Duke Energy and Enron.
"With interest rate falling, their dividend yields look fairly attractive," he said. "From a technical standpoint the electrical and gas utilities look like they have really broken out a multi-year down trend, and we could be at the beginning stage of a (sustained) rise."
Wariness for retail, chemicals
The chorus of money managers said they were likely to stay away from troubled sectors or markets that may not hold up in the current interest rate environment.
 The frowned on cyclical area such as paper goods and chemical companies, some high-priced biotechnology firms, regional banks and transportation concerns.
Retail was another suspect sector, they noted. Clothiers have struggled to woo consumers, who have run up a whopping $627 billion in credit card debt and now face rising interest rates. So-called "fashion-malaise" has also caused consumers to hold on to their wallets a little more tightly.
On the whole, analysts suggested sticking close to stocks that have performed well recently, and ride them through the remainder of the year.
"It's been a strange summer because we really didn't have a summer rally," said MDL Capital Management's Adatepe. "But our analysis that we have broken out to the upside and we are going to follow through with this right until the end of the year." 
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