Analysts believe stocks are a good buy right now

Steve Leuthold, of Leuthold Weeden Capital Management, spent the late '90s as a bear, even launching a fund called the Grizzly Short Fund. But now Leuthold believes stocks are a buy. "Based on the past five years of corporate earnings, the S&P 500's price multiple is just slightly above average. And the past seven bull markets have started with stocks at average valuations, not lows."

-- Vanguard PrimeCap Fund has appreciated an average 13.9 percent annually in the past decade, one of the best performances among funds that specialize in mid-size stocks. And its expense ratio, 0.49 percent, is less than half the sector's average. PrimeCap practices a particularly patient style of value investing, overlooking short- term reversible declines in search of long-term profits. Recent favorite issues: Adobe Systems, FedEx, Guidant, Novartis, Pfizer.

-- Many utility companies expanded heedlessly during the boom, with disastrous results for their shareholders. Now these newly bargain-priced outfits have gone on a cost-reduction tear. How can you tell the justifiably cheap utility stocks from the potential rebounders? One sign is a stable dividend, says Kiplinger's Personal Finance Magazine (1729 H St. NW, Washington, DC 20006). "Any recent cut indicates distress. Another test: debt of 50 percent or less of total capital. Finally, PE ratios between 10-1 and 13-1 suggest a reasonable valuation but not an alarmingly low one." Kiplinger's favorites: Consolidated Edison, DTE Energy, Exelon, FPL Group, Southern Co.

-- Among large general stocks, growth and income always makes a nice mix. Money magazine recently screened all public companies with annual revenue and market capitalizations over $3 billion, looking for those with at least 9 percent core earnings growth rates and yields over 2 percent. It found only six: Abbott Labs, Baxter International, Dupont, Fortune Brands, Limited Brands, Masco.

-- Morningstar analyst Eric Jacobson is worried about the recent flight into junk bonds. Current low returns on Treasuries make junk look attractive, he admits. "But investors tend to overlook the risk. I'm worried that people don't realize that the pendulum swings both ways. There's now a mini-euphoria for junk. The time to invest in them may have passed. If you're buying now, you've already missed a huge run-up."

-- Mutual funds explicitly intended to lower their investor's tax burden do provide some benefits, according to Lipper Analytical. A recent Lipper survey found that over a five-year period, the average tax-managed small-cap stock fund outperformed its non-tax-managed peers by 1.8 percentage points. But don't expect recently lowered tax rates on corporate dividends to boost that advantage much. Most taxes paid on fund investments are triggered by capital gains. Only 25 percent of the tax-management equation relates to dividends.

-- Site of the Week: The site www.wallstreetcity.com provides one of the most extensive collections of technical statistics for public companies, along with additional fundamental data. A corporate snapshot page can be edited to include any of almost 200 data points. Much of this information is free, but paid subscribers get access to additional data for $9.95 monthly.

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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