8 INVESTMENTS THAT NEVER LOSE MONEY It doesn't take magic to make money year after year. These stocks and funds have done just that every year since 1980 -- and they still look strong.
(MONEY Magazine) – With the stock market hovering at record heights and skeptical analysts -- including Money's chief investment analyst Michael Sivy -- warning of a potential 15% drop by September, it's no wonder investors are on the edge of their seats. They don't want to miss any rabbits the market may still have up its sleeve. But they also don't want their profits to vanish in the flick of a downturn. So without further ado, we present to you four stocks and four funds that could make you stand up and keep cheering for the rest of 1994 and beyond.
Each has posted gains in every year since 1980, including the two years --1981 and '90 -- when Standard & Poor's 500-stock index fell (by 9.7% and 6.6%, respectively). As a group, they've grown more than tenfold in value during the period, powered by a show-stopping average annual total return of 21%. More important, their winning streaks show no signs of flagging. So although past performance is no guarantee of future results, as investment barkers like to say, the analysts we talked to say these eight have a good chance of continuing their march. Want to know how rare such winners are? Screening for stocks that never lost money over the past 14 years whittled down the 6,700 U.S. issues tracked by S& ( P' s Compustat research division in Englewood, Colo. to just 16. And only 13 of the 1,700 equity funds followed by Morningstar, the Chicago-based mutual fund data service, navigated the hurdle. We then took the resulting short list to analysts, money managers and newsletter editors and pared our recommendations to the eight we believe have the brightest outlooks: three consumer-products stocks, an electric utility yielding 5.9% (all traded on the New York Stock Exchange), two growth and income funds and two equity total- return funds. Here are the details of our enticing eight, listed in descending order of their total return since 1980:
1. GILLETTE Symbol: G; the world's largest producer of shaving products and a leading maker of toiletries and small appliances; recent price: $61; yield: 1.4%; P/E ratio: 32; total return since 1980: 3,020% Thanks to aggressive marketing, sharp-minded cost control and innovative shaving products that have kept it ahead of both generic and branded competition, Gillette ($5.2 billion annual sales) seems likely to remain a global powerhouse. Its flexible-bladed Sensor razor, introduced in 1990, has been a huge hit, helping the company capture 33% of the $20 billion world shaving market, up from just 20% in 1990. Now Gillette is entering the Chinese market, where there are some 360 million adult male chins to be shaved, vs. only 90 million in the U.S. The company, which went through a major restructuring in the mid-'80s, is still paring costs: In January, Gillette announced it would cut 2,000 jobs by 1996, or 6% of its work force -- a move that raised its stock $4. "Gillette has shown it can compete in the brave new world and still save money," observes analyst Brenda Lee Landry of Morgan Stanley. She thinks the stock could reach $73 in 1994, for a 20% gain.
2. HERSHEY Symbol: HSY; the largest public U.S. producer of chocolate and confectionery products and the second largest U.S. pasta producer, with brands that include Ronzoni; recent price: $48; yield: 2.5%; P/E ratio: 15; total return since 1980: 1,799% While food stocks dropped by 9.4% overall last year, Hershey (annual sales: $3.5 billion) produced a sweet 6.6% total return for its investors. And the company's future looks so tempting that its stock could hit $57 by the end of 1994, a 19% gain, predicts Smith Barney analyst Ronald Morrow. One reason: Generic candy brands haven't made much headway because powerful Hershey and privately held Mars have kept their prices low. "Hershey has raised prices only once -- by 3.9% -- over the past five years and only eight times in its 100-year history," says Nomi Ghez, an analyst with Goldman Sachs. Hershey plans to maintain its low prices by reining in costs. For example, the company recently opened a chocolate factory at its headquarters that boasts labor costs 20% lower than at existing plants. The company hasn't lost its knack for coming up with winning products, either: Its Hugs -- which are milk chocolate kisses with a white chocolate coating -- were introduced only last summer at $1.79 for an eight-ounce bag and may pass $100 million in sales this year.
3. UNILEVER NV Symbol: UN; the Netherlands-based half of the giant Anglo-Dutch conglomerate that is now the world's second largest consumer-products company behind Philip Morris, with brands like Lipton, Ragu, Chesebrough-Pond's and Elizabeth Arden; recent price: $119; yield: 2.2%; P/E ratio: 16; total return since 1980: 1,697% This company has some of the best-loved products in the world but earns only 20% of its $43 billion in annual revenues in North America. While its stock price fell 5% early last year -- before rebounding -- during the crumble in consumer stocks led by the 28% drop in Philip Morris, Unilever still has an extremely valuable franchise, says Anne McIvor, an analyst with Hoare Govett in London.
Moreover, the company is poised to benefit from the anticipated European economic recovery; more than half of its sales are concentrated there. As a result, says analyst Joe Jordan at PNC Bank in Philadelphia, Unilever stock could hit $131 -- a 10% gain -- in 1994.
4. DOMINION RESOURCES Symbol: D; a Virginia electric utility serving 1.8 million customers; recent price: $43; yield: 5.9%; P/E ratio: 14; total return since 1980: 1,367% Dominion knows how to keep its shareholders happy: It provides a yield that beats the current 5.01% of five-year Treasuries and has 13 straight years of dividend increases plus excellent prospects for a '94 raise. That' s why we cited Dominion as our high-yield investment of the month in October. And though deregulation may bring tougher competition in the utility industry, Dominion will keep pleasing investors, says Roger Conrad, editor of the investment newsletter Utility Forecaster ($109 a year; 800-832-2330); he thinks its stock will reach $60 by 1997. For one thing, the company has invested heavily in its nonregulated subsidiaries, including 19 independent power plants around the country and in Latin America. These operations constitute only 5% of sales but deliver a return on equity of about 18% a year, vs. 12% for Dominion's regulated business and 11% for the utility industry in general. In addition, Mother Nature has favored the company lately: Last summer's heat wave and this winter' s deep freeze boosted customer demand by 6.4%.
5. CGM MUTUAL Phone: 800-345-4048; equity total-return fund; minimum investment: $2,500; maximum sales load: none; total return in 1993: 21.8%; total return since 1980: 737% CGM's 53-year-old manager, Ken Heebner, likes to place big bets, and he usually rakes in the chips for his investors. Evidence: This $902 million fund, which buys stocks and bonds, has outperformed its category rivals over the past five and 10 years (average annual total returns: 17.5% and 16.7%, respectively). That's why some have dubbed Heebner the next Peter Lynch. "I move aggressively to change my position," says Heebner. "I don't just sit there and hope the situation changes." Case in point: With interest rates likely to rise another half-point by year-end, Heebner has trimmed his Treasury holdings -- which would lose value in such a rate move -- from 50% to just 8% of assets. At the same time, he has placed a 25% stake on stocks of big money center banks, like Chemical and J.P. Morgan, because he believes the strengthening economy will increase demand for loans. In 1993, Heebner put another 25% in real estate investment trusts (REITs) like Avalon Properties, which invests mainly in apartment buildings. Thanks to rising rents and a reviving real estate market, he expects these REITs to return 10% to 30% a year over the next three years.
6. INVESTMENT CO. OF AMERICA Phone: 800-421-0180; growth and income fund; minimum investment: $250; top load: 5.75%; total return in 1993: 11.6%; total return since 1980: 697% Don't let Investment Co. of America's mammoth size ($19 billion in assets, the second biggest equity fund after $33 billion Fidelity Magellan) deter you from investing. This gorilla can sprint. The fund, run by a management team led for the past 36 years by John Lovelace, 66, has posted only 10 losing years in its 60-year history -- and none since 1977. Last year, ICA, which focuses on large-capitalization stocks, gained 11.6% to land in the top half of the 258-fund growth and income category, in part because 14% of its assets were in high-flying telecommunications giants such as MCI and AT&T. "We see communications as one of the most dynamic sectors of the economy," says manager Lovelace.
7. MERRILL LYNCH CAPITAL A Phone: 800-637-3863; growth and income fund; minimum investment: $1,000; maximum sales load: 6.5%; total return in 1993: 13.7%; total return since 1980: 683% Value hunting is big game for Ernest Watts, 61, who has been managing this $2.2 billion fund for 10 years: His fund's average P/E ratio is now 13.7, more than 20% below the S&P 500's P/E of 16.9 (based on projected 1994 earnings). And Watts knows where to roam for profits among medium-capitalization companies. Merrill Lynch Capital A's 10-year average annual return of 14.4% puts it among the top quartile of growth and income funds. But Watts never forgets that his shareholders are in his fund partly for income. He likes bargain stocks yielding more than the market's 2.7% average. Among his current faves: savings and loan Ahmanson (H.F.) & Co., selling at 20% less than book value and yielding 4.7%, and insurance conglomerate Penn Central Corp., selling at 15% below book and yielding 2.9%.
8. SENTINEL BALANCED Phone: 800-282-3863; equity total-return fund; minimum investment: $500; top load: 5%; total return in 1993: 9.6%; total return since 1980: 510% Sentinel Balanced practically redefines the phrase risk/reward ratio. The $239 million fund, located in Montpelier, Vt., keeps risks down -- it's been 75% less volatile than its peers since 1983. But the large-cap fund rewards investors handsomely -- its average annual return for the past three years was 12.8%. "Sentinel Balanced is your meat-and-potatoes fund suited for conservative investors who don't want the value of their shares to fluctuate much," says Jim Coursey, a Morningstar analyst. Manager Rodney Buck, 45, typically keeps 65% of the fund in stocks and 35% in bonds. But his concerns about a possible market decline have caused him to raise bondholdings to 40%, lower stocks to 50% and shift 10% into cash. Buck's chief stock picker, Christopher Martin, 52, says he thinks conglomerate W.R. Grace and newspaper publisher Gannett offer top values today. Meantime, Buck has 20% of his fixed-income assets in mortgage-backed securities such as Ginnie Maes, which often do well in times of rising rates. "We're not chasing | short-term fads but instead focusing on dividend income and dividend growth," he says. "Long-term consistent performance is most important to us." Just as it should be for all investors.