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Top investing tips for 1999
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January 14, 1999: 2:08 p.m. ET
Internet-related stocks, financial companies are among experts' top picks
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NEW YORK (CNNfn) - Investors will have plenty of opportunities to make money on Wall Street in 1999, but it will be a rocky year filled with twists and turns, financial advisors say.
"Be prepared for significant volatility and keep a bottle of Maalox at your side," said Andrew Addison, editor of the investment newsletter The Addison Report in Norfolk, Mass.
Wall Street bulls stampeded through the first week of trading this year, pushing the Dow Jones industrial average, the Nasdaq Composite and the S&P 500 to record highs. But this week hasn't been so lucky. The market has suffered heavy losses after Brazil devalued its currency on Wednesday.
The lure of Internet issues
So where should an investor turn in 1999?
Internet stocks may seem irresistible with their soaring prices, but investment gurus warn people to be cautious. One market strategist even compared Internet stocks to casinos -- a place to invest money you don't need to pay the rent.
"Look at it like it's your 'Vegas money,' so if you lose every penny you don't have to sell your home," said David Elias, president of Elias Asset Management in Williamsville, N.Y.
Of course, it's hard to ignore the meteoric rise of the Internet, Elias acknowledged. Analysts say 1999 could be even more frenzied than 1998 for Internet stocks.
But Elias prefers to invest in the Internet indirectly through big-name companies that will benefit from the new technology, such as Microsoft (MSFT), Intel Corp. (INTC), Lucent Technologies (LU).
Elias thinks large-cap stocks will continue to outpace small companies. He's bullish on technology, pharmaceuticals like Merck (MRK) and financial stocks.
"You should invest in companies you know -- companies whose products you use," Elias said. "So when you go into volatile times, you have the peace of mind to know these companies will be here when you leave this earth."
Focus on individual issues
Other experts, like Charles Crane, chief market strategist at Key Asset Management in New York, recommends sectors like telecommunications that have high growth potential even though most corporate profits are getting squeezed.
He also recommends companies that are getting a good return on equity, which is a measure of profitability. You calculate ROE by dividing after tax income by tangible assets.
Corporate ROEs have been going down in the last three quarters, and you might want to consider businesses that are bucking the trend, Crane said. He mentioned some financial stocks and consumer products companies.
Likewise, given that many Dow components have warned about shrinking profits in 1999, such as Coca-Cola (KO) and Procter & Gamble (PG), Crane recommends stocks that beat analysts' expectations.
"My broad advice is to concentrate on individual issues as opposed to trying to predict where the market is going," Crane said. "Making market calls is of very little value whatsoever."
James Awad, chairman of Awad & Associates in New York, has a different approach. He said people should turn away from ideas that have worked in the past -- and try what hasn't worked.
For example, the 50 biggest stocks, like Dell Computer (DELL), Lucent, Cisco Systems (CSCO), and Intel, have clearly dominated the market. This might be where the action is, but it's also where you'll find the highest valuations and "hot money," or momentum chasers like day traders.
"It's been a 'no-brainer' momentum market where securities analysis isn't important, and now you have almost dangerous valuation levels on those stocks," Awad said.
For something different, Awad is looking at the Russell 2000 index of small companies. The stocks have growing earnings and little or no exposure to rocky global markets in Latin America and Asia.
Awad likes vitamin maker NBTY Inc. (NBTY); Comdisco Inc. (CDO), a technology services company; printing company Printronix Inc. (PTNX); and Health Management Systems (HMSY), which provides data processing services to health care providers.
Awad also recommends railroad company Genessee & Wyoming (GNWR); Houghton Mifflin Co. (HTN), a producer of textbooks and educational materials; and Twinlab Corp. (TWLB), a maker of nutritional supplements.
Lastly, the arrival of the year 2000 and the possibility of Y2K problems may send a shiver through Wall Street later in 1999, Addison said.
"The market may sell off toward the end of the year because of concerns about Y2K," Addison said. "But domestically we'll be in good shape to handle Y2K."
-- by staff writer Martine Costello
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