For years, it seemed just about any stock-picking strategy would do, whether it was index investing, momentum investing, or buying tech stocks. Each approach had its gurus, each yielded good returns, and seemingly the only decision for investors was whether to reach for double- or triple-digit returns. The year 2000 began no differently. At first, the sky seemed the limit. But then winter gave way to spring, and the sky--along with Nasdaq and other markets--began to fall. By December, all that remained was to calculate if those losses were in the single or double digits.
The lesson for investors? It's time to return to basics. BUSINESS WEEK's Investment Outlook Scoreboard can help you make wiser choices, whether you're on the lookout for the next high-flier or shopping for bargains. Comprising 900 companies grouped into 24 industries, the Scoreboard offers information on America's biggest companies. Historical data, such as price-earnings ratios and yields, were provided by COMPUSTAT, a product of Standard & Poor's Institutional Market Services. Research firm I/B/E/S, a division of Thomson Financial, provided the earnings-per-share estimates and projected long-term growth rates based on its survey of 5,523 analysts. To help narrow your search, we've provided six lists based on popular investment approaches. In 2000, our lists returned 5% on average. This year, we've tweaked a few old ones and added new ones.
Conservative investors might wish to begin with dividends in picking stocks, focusing on large cap companies with a history of paying dividends. We decided to look beyond utilities, which typically dominate lists of high-yielding stocks. Instead, our table features such money-center banks as First Union Corp., yielding 7.6%. For those who fear an economic downturn, food and tobacco giant Philip Morris Cos. yields 5.6%, and its dividend seems solid.
FOLLOW THE NEWS. Banks also dominated our list of companies trading at a relatively low book value, another yardstick for value investors. This could reflect jitteriness over the loans on their books. We decided to limit our table to big-cap stocks bearing at least an A- S&P equity rating, such as Norfolk Southern Corp., trading at 94% of its book. But undervalued stocks can become more undervalued: Witness Raytheon Co., which fell after saying it would not meet 2001 profit projections.
Value investors focusing on low p-e and price-to-book ratios also will want to look at our cheap stocks table. Last year's list has returned 19% as of Nov. 30. One caveat: Cheap stocks can get cheaper. Auto-parts maker Visteon Corp. fell on Dec. 6, when it announced fourth-quarter earnings would be below expectations. Follow the news.
Look at our table of stocks with big price increases this year. Generally, shares that do well in one year continue to perform well the next. Of course, the Internet debacle in 2000 was an exception to that rule. This year's list is made up of comeback stars such as Oxford Health Plans Inc., the managed-care insurer on the mend from computer-system and financial-controls problems of a few years ago.
In a year when tech stocks went down like the Titanic, the contrarian in you has to love our high-growth tech-stock list. Many of the companies are way down and may fall further before the tax-loss selling season ends. America Online Inc.'s earnings are expected to jump 50% for the next three to five years, and its merger with Time Warner Inc. appears certain. No one can predict how content and commerce will shake out on the Internet, but AOL Time Warner is sure to be a big player.
Looking for earnings growth? Our "high hopes" screen consists of companies where real or projected earnings for 1999, 2000, and 2001 are positive, and each year is greater than the year before. Our list reflects the strength in oil services: Weatherford International Inc.'s earnings are expected to grow 126% next year.
But any list is only a starting point. For example, one stock that almost made our table of companies where earnings are expected to jump in 2001 is KLA-Tencor Corp. This leader in monitoring equipment for chipmakers is expected to earn $2.28 in 2001. So get ready to dig into the data. There are other gems to be uncovered. And remember, the sky is no longer falling.