Expert leery of stocks

One of Wall Street's most experienced technicians is very skeptical about stocks right now. He's Richard Russell, editor of the country's oldest market newsletter, Dow Theory Letters (P.O. Box 1759, La Jolla, CA 92038). "Volume on this breakout in the Dow averages has been very thin," Russell says. "And the technicals behind the market are hardly encouraging. We're also seeing very heavy insider trading. The sentiment background could hardly be called promising."

-- The fact that a stock is cheap isn't enough to make it a value in the eyes of the value-oriented Oakmark Fund, which has appreciated an average 11.5 percent annually over the past decade. Oakmark also wants growth prospects. So it buys promising, but established, owner- managed businesses selling for at least 40 percent less than what it considers their true value, and then sells them when they reach 90 percent of that value. Recent favorites: H&R Block, Fannie Mae, Home Depot, Washington Mutual, Yum! Brands.

-- Hospital stocks have declined for two straight years, depressed by possible congressional investigations into pricing practices and uncertainties about Medicare reforms. Now, The Turnaround Letter (225 Friend St., Boston, MA 02114) thinks they're due for a rebound. "The hospital industry is generally profitable, and balance sheets are pretty sound. Many hospital stocks trade at attractive valuations, and the aging baby-boomer generation is another plus." TL's favorites: Community Health, HCA, MedCath, Province Healthcare, Rehabcare Group, Tenet Healthcare, Triad Hospitals.

-- The dean of value investing, Benjamin Graham, believed you could create a margin of safety by buying quality stocks with histories of steady earnings growth and dividend payments and not overpaying for them. Money magazine recently screened for consistent dividend-paying companies with earnings growth of at least 50 percent over the past decade, strong balance sheets and price-earnings ratios below 17-1. Of 29 qualifiers, three emerged as favorites: Centex, IHOP, MBIA.

-- Interest rates are still hovering near their historical lows. So if you place a premium on principal protection, you'll have to forgo lofty yields. Your best bet: bank money-market accounts, some of which recently yielded close to 2.5 percent. "They beat most other short-term alternatives right now," says Bankrate.com's Greg McBride. "And if rates go higher, the increase will quickly be reflected in their yields."

-- If you've decided to fight low yields by opting for the steady cash flow of annuities, remember that you don't have to invest all your money at once, cautions Kiplinger's Personal Finance Magazine (1729 H St. NW, Washington, DC 20006). "In fact, you should buy in increments. With interest rates at 40-year lows, this isn't the time to put too much in annuities. If rates rise, buy a second annuity in a few years, giving a double boost to your payments: one from the higher rates, the second because you'll receive fewer, larger payments."

Site of the Week: See www.barra.com for a free site devoted to a wide range of market statistics, including detailed information about the S&P 500 and Canadian investment-style indexes. Summary returns, security descriptions, performance charts, sector breakdowns, fundamental characteristics and downloads of monthly returns are also available.

Investor's Notebook is a digest of investment opinion from the world's leading financial advisers. It does not recommend any specific investments, and no endorsement is implied or should be inferred. For more information, contact the individual firms cited.

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