Longer Wait For A Turnaround

AIM Fund's Craig A. Smith relies on a three-to-five-year time horizon to recover

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When Craig Allen Smith, vice president and senior portfolio manager for Houston-based AIM Funds, presented his Private Screening selections last year, the economy seemed to be on its way to recovery. Then Sept. 11 changed everything. Smith says the terrorist attacks and the broadening corporate accounting scandals have prolonged the bear market that is gripping the nation’s economy. And his stock picks were deeply affected.

“The stocks I selected were fairly diversified by sectors, but they were very volatile just as the market has been very volatile,” says Smith. He still adheres to a three-to-five-year time horizon for selections unless he has to sell a stock because of lack of performance.

Smith, who manages the AIM Balanced Fund (AMBLX), says the fund no longer holds Calpine (NYSE: CPN) or Genzyme Corp. (Nasdaq: GENZ) because both experienced shortfalls in their earnings projections. The poor performance of those two stocks was the chief reason that Smith’s picks lost 35.93% over the 52-week period from Aug. 23, 2001, to Aug. 22, 2002. By contrast, the Standard & Poor’s 500 index reported a loss of 17.16% and the Dow Jones industrial average lost 11.49% over the same time period.

Genzyme’s new formulation of Renagel, a dialysis drug, didn’t generate the revenues that were expected. The stock loss 53.83% from $54.89 to $25.34. Smith sold AIM’s stake in Genzyme in June. Calpine, the independent power producer, had an extremely difficult time adjusting to the recent California energy crisis. It committed to a build-up of electric generating capacity, but now that prices and demand have stabilized, the debt it incurred has eroded profits. The stock was hammered, falling 85.20% from $31.75 to $4.70. He sold AIM’s position in Calpine in February.

As for his other three selections: “JPMorganChase, Target, and Microsoft, we remain committed to,” says Smith. “The reasons why we bought these stocks are that they’re intact long-term.”

Target Corp. (NYSE: TGT), the retailer, had modest gains of 3.79% from $35.89 to $37.25 since Smith’s recommendation, keeping it well positioned to accelerate growth once the economy picks up steam.

Although JPMorganChase (NYSE: JPM) has suffered due to less demand for investment banking services, Smith says it has done a good job of cutting costs, which will help the company rebound strong when the economy strengthens. The stock fell 34.45% from $40.72 to $26.69.
And software maker Microsoft (Nasdaq: MSFT) showed some resilience to market forces, posting a 9.96% loss, going from $59.12 to $53.23, even though demand for its products is very soft.