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Jeffrey Marcus, senior portfolio manager at Paradigm Asset Management Co. L.L.C., (No. 14 on the BE ASSET MANAGERS list with $1.06 billion in assets under management) predicts the economy will slow in the second half of the year due to the rising price of oil and higher interest rates. As inflation works its way through the economy, Marcus sees economic growth receding from a 5.3% annual rate during the first quarter of 2006 to 3% in the fourth quarter.
While recent economic news, such as low unemployment, good corporate earnings, and increases in consumer spending and consumer confidence is encouraging, Marcus says that won’t be enough to stop the impending downturn. He forecasts that the price of everything, from manufacturing raw materials to food and medicine, is going up. And interest rates are slowing the real estate market and increasing the cost of borrowing.
“In this environment, investors should rely on diversification as the main ingredient for their investment strategy. By taking subtle bets, you will be successful in the long term,” Marcus says.
Paradigm, a White Plains, New York-based asset management firm, manages $900 million in assets for institutional investors such as American Express, the Chicago Transit Authority, and General Motors Corp. The company’s investment philosophy emphasizes long-term growth, using market capitalization, price-to-earnings ratios, and long-term earning-per-share performance to identify industry sectors with the most promise.
Marcus says the company invests in businesses with strong earnings, or revenue growth potential. The following are Marcus’ selections.
One stock he finds promising is Archer-Daniels-Midland Co. (NYSE: ADM), which procures, transports, stores, produces, and merchandises agricultural commodities and products. “As the need for alternative energy continues, it’s worthwhile to note that Archer-Daniels’ production of ethanol accounts for 25% of the current U.S. ethanol capacity,” says Marcus.
Coldwater Creek Inc. (NASDAQ: CWTR), a retailer of women’s apparel, jewelry, and gift items, is also on Marcus’ radar. The company, which operates nationally via catalogs, direct mail, and the Internet, is experiencing an increase in sales.
Lockheed Martin Corp. (NYSE: LMT), a worldwide aeronautic, electronic, and information technology company, has been a reliable performer for Marcus. With its ability to conduct research and develop and manufacture advanced technology systems, products, and services for military and government agencies “Lockheed consistently wins government contracts, and its earnings before interest and taxes has been very impressive, quarter after quarter, for the last 10 years,” says Marcus.
And Marcus’ final pick is Precision Castparts Corp. (NYSE: PCP). The company manufactures complex metal components and products. “Largely due to its operational efficiencies, Precision most recently reported record sales and earnings. The company’s businesses are strategically positioned to take advantage of growth in aerospace, automotive, and other markets,” says Marcus.