Finding Value In A Steamy Market

David Fried's Buyback Letter uncovers value by buying shares of companies that are repurchasing their own stock. Gains have amounted to 166% over the last seven years. Click here to get his July picks.

Not all technology names have become ridiculously expensive, Buckingham says. He recommends buying three moneylosing stocks that trade at or close to book value: networker 3Com, Dutch Internet company Via Net.Works and semiconductor maker Integrated Device Technology. Buckingham is also finding value in some transportation companies, such as CSX, which has a P/E of 15, and ocean shipper Sea Containers, which trades for 40% of book value and has a P/E of 6. Both companies stand to gain business if manufacturing activity picks up.

George Putnam of The Turnaround Letter is putting his money on Kohlberg Kravis & Roberts holding Primedia, a magazine conglomerate which once sold for as much as $34 per share but now trades for one-tenth of that price. Primedia has a price-to-sales ratio of less than 0.6; according to Putnam, its management and balance sheet have been overhauled.

For Kelley Wright, editor of Investment Quality Trends, the hallmark of value lies in rich dividend yields. As share prices appreciate in value, the dividend yield declines, and the stock becomes overvalued and ripe for selling. Wright publishes a list of "undervalued" stocks with dividend yields in the high end of their historic range, which he advises subscribers to buy. Included in his list are Altria, which yields 5.5%; Electronic Data Systems, with a 2.7% yield; and FleetBoston Financial, with a 4.5% yield.

Yield also figures prominently as a measure of value in the fixed-income market for Richard Lehmann, editor of the Forbes/Lehmann Income Securities Investor. Lehmann enjoyed tremendous gains over the last year by picking up distressed energy and telecom debt at huge discounts with yields upwards of 20%. As the prospects for those companies' survivability improved, so did the price of the debt. Now with interest rates heading higher and institutions shifting more money into stocks, Lehmann says to seek out high-yielding convertible bonds and preferreds, which pay decent income and have the potential to participate in the appreciation of equities.

Forbes Gurus' buy list, "Ten Stocks for the Summer of 2003," is already up nearly 15%. To download the picks, sign up for Forbes FREE Investment Guru Weekly E-mail.

Lehmann advises buying the 6% convertibles maturing in September 2009 from Level 3 Communications for a 9.5% yield. Among convertible preferreds, Lehmann recommends the 9.5% issue from TECO Energy for a 12.7% yield, as well as the Motorola 7% issue, which now yields 11.6%.

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