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Last year, Barbara L. Bowles, founder and CEO of The Kenwood Group, a Chicago-based equity management services firm, estimated that an economic rebound was on the horizon — and it wasn’t far from the truth. When she supplied BLACK ENTERPRISE with a portfolio of five companies Bowles looked for mid- to large-cap companies that carried little debt and had been able to take advantage of economic policies designed to encourage corporate growth.
Bowles, a former investor relations chief at Kraft Inc. and Beatrice Companies Inc., suggested that technology and materials companies were most likely to expand production and staffing in 2004, but she didn’t limit her selections to those sectors. Although the rebound hasn’t been as robust as many analysts predicted, the economy has experienced steady improvement and Bowles’ picks have benefited.
Bowles’ portfolio yielded a 22.50% return over the 52-week period from Nov. 13, 2003, to Nov. 12, 2004. In comparison, the S&P 500 rose 11.88% and the Dow Jones Industrial Average rose 7.13% during the same period.
Securities products and services firm Kroll Inc.*** was the biggest winner for Bowles. She felt positive about the future earning potential of the company’s accounting and background screening divisions. Marsh & McLennan Cos. felt the same way and paid $1.9 billion to acquire the obscure New York City-based company, which also offers computer forensics, data recovery, and corporate restructuring services. The stock was trading at $28.10 when it was acquired, but the agreement included a cash buyout at $37 per share, which resulted in the stock producing a total return of 57.58%.
The worst performing stock for Bowles was Western Digital Corp. (NYSE: WDC). The company lost 31.63%, sliding from $13.15 to $8.99 a share, but Bowles still believes the company should reach the 12- to 18-month target price of $17 that she set for it. “We are still holding it. We believe they have adjusted to the [economic] environment, meaning they really had to take down inventory because there was too much [of it] in the disk drive industry.”
The Kenwood Group sold Renal Care Group Inc. (NYSE: RCI) in May before the stock split 3-for-2. “We sold this at a very good price and at full value because the stock has not moved since [November 2004],” says Bowles of the dialysis services company. Had the stock been held for an entire year, it would have increased 27.10% to $33.49, adjusted for the stock split.
Another healthcare stock, Becton Dickinson & Co. (NYSE: BDX), also did well. Selling at $37.24 at the time of recommendation, Becton Dickinson jumped to $54.27, yielding a 45.73% gain. “This stock is still in our portfolio. However, we recently cut our position back,” says Bowles. “We would consider it a hold and not a buy at this price.”
Finally, The Kenwood Group cut back its holdings of Janus Capital Group Inc. (NYSE: JNS). Bowles saw the mutual fund firm as a good buy at $13.86 a year ago and forecasted that the stock could reach as high as $18 in a 12-