Looking Toward Expansion

There are indications that the current administration’s economic policies have finally begun to lift the economy, at least for the short-term. One of the most severe bear markets ever is starting to fade into a memory.

Chicago money manager Barbara L. Bowles has taken notice and, after surveying a host of factors, she expects the economy to be on the upswing. A 25-year veteran of the financial industry, Bowles says the economy’s pulse, as measured by gross domestic product or GDP, could grow as much as 3.8% in 2004. Therefore, Bowles expects companies to become more active this year. Corporations will likely boost production and hire more workers. And as a result, Bowles is looking for stocks in industries critical to expansion, such as technology and materials, to have a good 2004.

Bowles is the founder and CEO of institutional money management firm The Kenwood Group, which currently supervises some $260 million in institutional and pension funds for clients such as Abbott Laboratories and Mitsubishi Motors. Until recently, her company managed the Kenwood Growth and Income Fund (KNWDX), which has posted very solid numbers. As of mid-November, the mutual fund posted a 26.8% total return — almost six percentage points above the Standard & Poor’s 500 Index. At the end of the third quarter of 2003, the Kenwood fund had logged an average 6% annual total return over the previous five years, compared to 1% for the S&P 500. This year, Bowles merged the assets of the Kenwood fund with another black-owned fund, the Profit Value Fund (PVALX), which is run by Eugene Profit.

Bowles invests in companies with a market cap of $400 million to $8 billion that may have had a recent setback but still have strong prospects going forward. She likes holdings that are earmarked to grow profits or earnings at about 8% a year, on par with the overall market. Bowles usually opts for companies that are selling at a price to earnings (P/E) multiple that is in line with, or a bit less than, their industry peers. Finally, she checks to make sure candidates are not overly strapped with debt.

For her private

screening portfolio, Bowles selected five stocks in a variety of industries. She says the accounting and background screening firm, Kroll Inc. (Nasdaq: KROL), is an amalgam of businesses that are worth more separately than the company’s recent stock price. She says Kroll generates as much as $1.5 million in free cash flow and is on course for solid profit growth in years ahead.

Technology manufacturer Western Digital (NYSE: WDC) makes disc drives and a host of other electronic devices, including set-top boxes. Bowles sees the recent economic pickup as a short-term catalyst that will help propel Western’s revenues higher.

Bowles likes two medical device makers: Renal Care Group Inc. (NYSE: RCI), which runs dialysis centers for patients with kidney

conditions, and Becton, Dickinson & Co. (NYSE: BDX), a manufacturer of blood glucose monitoring products. Recent versions of Congress’ proposed Medicare spending bill include boosts in dialysis spending, a boon to the Renal Care Group’s prospects. Becton, Dickinson should also see its earning power increase internationally with the development of new diabetes products and potential safety product legislation.

Bowles’ final selection is the money management and mutual fund firm Janus Capital Group (NYSE: JNS). Controversy over the trading practices of the fund industry’s big players, which includes Janus, have sent the stock’s price lower. Bowles thinks the market has overreacted, leaving Janus shares a tempting target to overseas banks that may desire a U.S. presence.

BARBARA L. BOWLES’ Private Screening Picks
Company Exchange: Symbol	Price*	12- to 18-Month Price Target	P/E on Projected 2004 Earnings	Est. 5-Yr. Annual EPS Growth Rate	Why Stock Will Outperform
Kroll Inc. Nasdaq: KROL	$23.48	$34.00	23.5%	16.8%	Demand is high for the company’s accounting and screening skills, and the individual companies that comprise Kroll are worth more than the company’s stock price.
Western Digital Corp. NYSE: WDC	$13.15	$17.00	13.5%	10.0%	Earnings are expected to grow as a result of the rational pricing environment, and costs may go down as a result of Western’s vertical integration initiatives.
Renal Care Group NYSE: RCI	$39.53	$46.00	19.5%	13.6%	Renal’s profits could climb on news that Medicare legislation may boost dialysis spending.
Becton, Dickinson & Co. NYSE: BDX	$37.71	$42.00	17.7%	12.7%	Becton, Dickinson may benefit internationally from increasing momentum for new blood glucose monitoring diabetes products and approved safety legislation.
Janus Capital Group NYSE: JNS	$13.90	$18.00	19.0%	9.9%	Questions regarding mutual fund trading have hit Janus’ shares, an overreaction that has the stock trading at an attractive price.
*STOCK PRICES AS OF 11/13/03. SOURCES: MORNINGSTAR; THE KENWOOD GROUP; YAHOO! FINANCE; ZACKS.