Bernie's Best Bets

08/29/2002 12:00 am EST


Bernie Schaeffer

Chairman and CEO, Schaeffer's Investment Research

At each Money Show event, Bernie Schaeffer issues five top stock picks. The five chosen at The Las Vegas Money Show in May now show an average gain of 9.3%, versus a 12.5% decline in the S&P over the same period. His picks from last year's San Francisco Money Show are up 15.7%, far outperforming the S&P's 12.6% drop. Here are his new picks…

Bernie selects his top picks by assessing both their fundamentals and technicals - and then adds an assessment based on sentiment measures. This combination of three different investment styles forms the basis of Bernie's unique approach to stock selection, called Expectational Analysis. 

Three of the stocks in Bernie’s current Money Show portfolio are long positions:  

Ryland Group (RYL NYSE) has shown 61% earnings growth in the most recent quarter with no sign of a slowdown. Meanwhile its p/e ratio of seven is very modest.  Technically, the stock recently showed support at its rising 20-month moving average that also supported the September 2001 pullback. The stock has performed at seven times the level of the S&P since 2000. From a sentiment standpoint, short interest of three million shares is more than 10% of outstanding shares, and there are more open put positions than call positions.”

Krispy Kreme (KKD NYSE) continues to see earnings that exceed Street estimates; the most recent two quarters showed gains of 87% and 55%. Technically, the stock’s pullbacks are being contained at its rising 20-month moving average, and the stock has performed at triple the S&P over the past 18 months.”

Harmony Gold (HGMCY) has performed nearly twice as well as the Philadelphia Gold & Silver Index this year, while the index itself has outperformed the S&P by 50%.  Gold is an important hedge against deflation, depression, stagflation, dollar collapse, war, and terrorism. June quarter earnings rose by 20%, fiscal 2002 gold output rose by 25% from 2001, and the stock trades at a p/e of about ten. Meanwhile, short interest is ten times the level of late 2001. And the market cap of the entire gold industry is less than that of Nokia.”

To round out the top five positions, Bernie also offers two “bearish” picks.

Microsoft (MSFT OTC) sports a $260 billion market cap and a 35 p/e ratio in a slow growth environment. This makes the stock vulnerable. Technically, the stock dropped below its key long-term support at its 80-month moving average. This usually results in major additional declines. In addition, there have been seven separate bullish magazine cover stories on Microsoft over the past year, indicating an excess of bullish sentiment.”

IBM (IBM NYSE) also dropped below its key long-term support at its 80-month moving average, which usually results in major additional declines. Its relative strength vs. the S&P has been in a declining mode since November 2001. In addition, Wall Street is enamored with the stock. According to Zacks, 13 of 21 analysts rate IBM a buy, and its short interest is a very modest 0.3% of outstanding shares.”

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