With currency and economic developments in Asia keeping the stock market skittish, what's an investor to do? Carol McMurtrie, managing partner at investment firm Loomis Sayles, thinks that in these uncertain times, "boring is good." She is staying away from such "exciting" sectors as high-technology and switching a sizable chunk of the $6 billion she manages into companies that offer few or no surprises--but whose balance sheets are healthy and whose earnings growth rates are predictable.
Among such "unexciting but dependable" companies that top her favored list: BankAmerica (BAC), BellSouth (BLS), and Fannie Mae (FNM), formerly known as the Federal National Mortgage Assn. "These are steady, mom-and-apple-pie stocks," she says, that hardly wavered during the market's recent bout of volatility. BankAmerica, now trading at 77 5/8 a share, has stayed near its 1997 high of 81. BellSouth, currently at 56, has not strayed very far, either, from its high point for the year of 57 1/2, and Fannie Mae, at 55, also has stuck close to its high of 56 7/16.
McMurtrie thinks that they are way undervalued despite their relatively sturdy performance. "They should be trading at much higher prices--at least at a slight premium to the market's p-e ratio," she argues.
As a value investor, McMurtrie favors stocks that sport price-earnings ratios lower than that of the Standard & Poor's 500-stock index. She notes that while the S&P's p-e is 21 to 22, BankAmerica's multiple is a cool 15, BellSouth's 18, and Fannie Mae's 17. Yet their fundamentals are solid: "They all have sustainable earnings growth, operate in growing businesses, and are run by strong management," says McMurtrie.
At BankAmerica--the nation's third-largest bank holding company--the operating costs are growing at a slower rate than revenues, she notes. McMurtrie expects that the management will use its excess cash flow to repurchase more stock. She figures that BankAmerica will earn $4.30 a share this year and $5 in 1998, compared with last year's $3.65.
BellSouth is the largest U.S. telephone holding company, based on 1996 access lines, she notes. It provides phone local service to 22 million customer access lines in nine Southeastern states and has expanded into the fast-growing wireless phone business, including the international cellular market. McMurtrie figures that BellSouth will earn $2.85 this year and $3.15 next, up from last year's $2.88.
Fannie Mae, a government-sponsored agency that provides mortgage credit to home buyers, is expected to maintain its steady recent rate of growth, thanks to healthy long-term demand for housing, in addition to its access to low-cost funds. McMurtrie figures that Fannie Mae earnings will jump to $3.15 a share next year, up from 1997's estimated earnings of $2.80. It earned $2.50 in 1996. "It's simply a moneymaker," she says.