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What goes up often comes down-and may well go back up again. “We’re active managers,” says Maceo K. Sloan, chief investment officer of NCM Capital Management, based in Durham, North Carolina. “Once the stocks we own hit a target price, we take our profits and go on to other opportunities that seem more attractive.”
Thus, of the five stocks he recommended a year ago, only two-America Online (NYSE: AOL) and AES Corp. (NYSE: AES)-are still among his firm’s holdings. (The chart on this page tracks 52-week stock performance starting on July 2, 1999.)
Dulles, Virginia-based AOL, which was trading at $111.75 at the time, later split 2-for-1, so his recommendation price was effectively about $57 per share. “The stock went over $95 [a share],” he says, “so we took our profits.” Now, AOL , the world’s largest Internet service provider, is selling for around $60 per share, and Sloan thinks the stock could climb back up to $90 within the next 12 months.
His other holdover, AES, which was trading at $58.88 at the time of recommendation, later split 2-for-1, which effectively changed the price to $28.41. It then shot up to more than $45 per share. Sloan believes, “The stock has the potential to trade higher.”
What about the other companies on last year’s list? Mandalay Resort Group (NYSE: MBG) was $22.50 at that time; the stock moved up to more than $25, then retreated to well under $20. Says Sloan, “We’re not upbeat on the casino industry, which is out of favor now, so we no longer own the stock.”
Similarly, pharmaceuticals are currently unloved on Wall Street, in part because of fears that federal price controls could trim industry profits. ICN Pharmaceuticals (NYSE: ICN), which Sloan recommended last year at $33.50, went no higher and is now selling around $27. “This is another stock we don’t own now,” he says, “in an industry where we don’t have much of a presence.”
His fifth and final recommendation was Infinity Broadcasting (NYSE: INF), which owns radio stations as well as billboards. “The stock, which was at $26.27 at the time we mentioned it, went up to more than $40 per share,” says Sloan. “We took profits when the stock hit its target price, and moved on.” At press time, the stock had fallen to roughly $36 per share.
Thanks to Sloan’s portfolio turnover tactics, Dreyfus Third Century fund (Nasdaq: DRTHX), which he co-manages, ranks in the top 25% for one-, three-, five-, and 10-year performance, has returned 30% in each of the past three years, topping the Standard & Poor’s 500 index by roughly nine percentage points in 1999.
His advice for the coming year? Asserts Sloan: “In technology, stick with proven companies such as AOL, which generates real cash flow. Otherwise, invest steadily in a diversified portfolio and don’t panic. Long-term, it has always paid off to hold good stocks.”
AES Corp. (NYSE: AES)
Total Return:* 60.61%
Current Value of $1,000 Investment: $1,606.12
America Online (NYSE: AOL)
Total Return*: -8.24%
Current Value of $1,000 Investment: $917.58
ICN Pharmaceuticals (NYSE: