Ask investors about the market in 2004, and the most likely description you'll hear is "mediocre." Had the question been posed before the recent rally, the answer would have been unprintable. Following a strong 2003, many stocks spent the year treading water. But those that made it through our Investment Outlook screens averaged a 16.1% return from Dec. 31 through Nov. 30, handily beating the Standard & Poor's 500-stock index, the NASDAQ Composite index, and the Dow Jones industrial average, which returned 7.2%, 5.1%, and 1.7%, respectively.
Sure, past performance is no guarantee for the future. But our lists are a good place to look for stocks that may outperform the market. The stocks are drawn from the 900 publicly traded companies on the Investment Outlook Scoreboard. These companies are chosen on the basis of sales and market capitalization. They must also have a share price of $1 or more.
There are dozens of ways to slice the data -- and to get you started, we've done it eight ways. We've sorted the tables on traditional value criteria such as stocks with low price-to-book-value ratios and high dividend yields. We've taken the growth investors' tack, too, with a leader-of-the-pack list made up of companies whose return on equity is higher than the industry and whose projected earnings growth is expected to beat its peers. We also have a screen for high-yielding mid-cap stocks. That's a sector often overlooked by dividend hunters.
Those whose idea of fun is poking about flea markets may like our cheap-stock screen. Investors have dumped shares of these outfits because they're in troubled industries or are having earnings problems. Seven on this year's list are in the insurance industry, the current target of investigations by New York State Attorney General Eliot Spitzer. But for some of them, it may be a case of guilt by association. LandAmerica Financial Group (LFG ), a title insurer in Richmond, Va., is well out of Spitzer's crosshairs, but the market is worried that the company will falter if rising mortgage rates slow the sales of houses. If the market has overreacted, LandAmerica could be a steal.
Still, inexpensive stocks are usually down for a good reason. General Motors Corp. (GM ) is one in this category -- because investors fear that rising health-care costs will hurt GM's ability to innovate and pay its dividend.
Value investors looking to hedge their bets ought to scan our low-price-to-book list. All of the stocks carry an S&P equity rank -- which measures financial soundness -- of at least A-. Along with the usual financial firms, such as Bear, Stearns & Co. (BSC ), is one telecom company, CenturyTel Inc. (CTL ). Although many investors look askance at the boom-and-bust telecom industry, CenturyTel is quite a different kettle of fish: It operates in rural areas where it has little competition. S&P analysts say that the cost-cutting measures at CenturyTel should ensure that cash flow continues to grow -- and they remain bullish on the stock.
Another telecommunications-related stock, wireless-equipment supplier Andrew Corp. (ANDW ), is a worthy name on our list of mid-cap stocks. Wall Street analysts are forecasting a double-digit rise in its sales and a 175% increase in its earnings. Andrew, an important supplier for Cingular Wireless (BSC ) LLC, may benefit from the merger of Cingular and AT&T Wireless as the combined entity builds additional capacity.
Technology stocks have disappointed many during the past year, especially since 2003 was so strong. In 2005, investors may be pleasantly surprised with the stock performance because expectations are low and any surprises should be to the upside. Two promising names on our high-tech stock screen are KLA-Tencor Corp. (KLAC ) and Chiron Corp. (CHIR ).
KLA-Tencor makes the quality-control-monitoring equipment that is used by chipmakers. Sales in the first quarter of its 2005 fiscal year climbed about 60%, and analysts expect earnings to rise 83% for the year.
Shares of biotech company Chiron have fallen by about 33% since Oct. 4, when British regulators shut down a flu-vaccine plant after finding evidence of contamination, leading to the vaccine shortage in the U.S. If Chiron can fix its vaccine-manufacturing problems, the stock may be a bargain.
Another technology list that screens for above-average long-term growth projections turned up Genentech Inc. (DNA ) and Yahoo! Inc. (YHOO ). Genentech's Avastin cancer drug stands a chance of reaching $5 billion in sales, and the company has additional drugs in the pipeline, including one used for treating age-related degenerative eye disease.
Yahoo's growth in profits and revenues -- and share price -- has been nothing short of phenomenal. Where will the future growth come from? One promising field is wireless, given its purchase of technology that lets people move songs and photographs to mobile devices. With its focus on simplicity and breadth of offerings, Yahoo could dominate the wireless Web.
Stockpickers should love our leaders-of-the-pack screen. It turns up an eclectic bunch, including companies that are outperforming their peers in various industries. Near the top is Coach Inc. (COH ), a venerable name in leather goods and handbags. Since going public in 2000, Coach's sales have more than doubled, while earnings have soared almost sevenfold. In the next few years, the company expects to open an additional 100 stores, many of of them located abroad.
As the leader in drug-coated stents that open up narrowed arteries, Boston Scientific (BSX ) is on a roll after stumbling badly last summer. The company had to recall about 90,000 stents. The stock cratered, but the company fixed the problem, and earnings are moving up nicely. They're expected to climb 35%, to $2.19, in 2005.
Our big-dividend-payers list is dominated by cigarette companies and drugmakers -- an interesting combination given that Merrill Lynch & Co. (MER ) Chief U.S. Strategist Richard Bernstein has dubbed Big Pharma, with all its legal problems over drugs such as Vioxx, "potentially the new tobacco stocks." If he's right, beaten-down drug stocks could offer real buying opportunities. Recall that Altria Group (MO ), formerly Philip Morris Cos., continues to pay high dividends as it fights all its lawsuits. Between dividends and price appreciation, Altria has had an average annual return of 24.1%, vs. the S&P 500's -1.8% over the past five years.
For those who say no to drugs and tobacco, we offer up our mid-cap high-yield list. Rural-based Citizens Communications Co. (CZN ) yields 7.0%. Although there's some concern about the debt on its balance sheet, Citizens is moving to refinance that debt, notes Legg Mason Wood Walker analyst Christopher Walker, who rates Citizens a "buy."
Deluxe Corp. (DLX ), a check printer, yields 3.7%. To offset the decline in the number of checks being written nowadays -- as a result of electronic payments -- Deluxe is diversifying through its 2004 acquisition of New England Business Service, a provider of business forms.
Our lists, of course, are just a starting point. The Scoreboard is filled with information to make smart picks. So when 2005 comes to an end and someone asks how you did in the market, your answer can be: Pretty darn good.
By Robert J. Rosenberg