Don't be surprised if the market stalls right around here: History shows that the Standard & Poor's 500-stock index tends to stumble in the third quarter, says Sam Stovall, S&P's chief investment strategist. Since 1945, the index has had its weakest gains in the third quarter. Over the years, the index has risen 2.4% in the first quarter, 2.1% in the second, 0.1% in the third, and 4.1% in the fourth.
Summer profit-taking takes a toll, says Stovall. So get defensive, says Stovall: Stocks with steady growth and low risk profiles (low betas) fare best in this period. Stovall's top picks: Hair-care and beauty-aid giant Alberto-Culver (ACV ); regional lender Compass Bancshares (CBSS ); and Oxford Health Plans (OHP ). Alberto-Culver, aided by acquisitions, is ranked A+ by S&P in earnings and dividend quality.
At Compass, with 358 branches in the Sunbelt, loans and deposits are growing faster than the industry average. It has a 3.1% payout yield and is also ranked A+. Oxford, which manages health-care plans, trades at a discount to its peers. With revenues expected to rise 11%, to $5.4 billion, in 2003, Oxford should shine in 2003, says Stovall. S&P's investment-policy panel forecasts the S&P 500 will close 2003 at 1030 -- up 17% for the year.
Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.
By Gene G. Marcial