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Across My Desk

As any experienced investor knows, the markets moves in cycles. Remember when large-cap growth stocks were hot then went cold and small-cap and value stocks took center stage? I do and personally have been waiting for my S&P 500 Index fund to get back to even ever since. But if one well-established money manager and newsletter publisher is correct in his future forecasts, that time may come soon rather than later.

In Louis Navellier 's September newsletter, the lead story was about how large-cap growth stocks could be undervalued--- a lot. Like 40 percent undervalued. Here are some of the reasons his newsletter sites for taking that stand:

  • Large-cap earnings are at record levels, and so are operating cash flows.

  • As of 9/26/05, Ned Davis Research's "Russell 1000 Growth Index vs. NDR Fed Valuation Model" indicates that the Russell 1000 Growth Index is 40% undervalued. (The Russell 1000 Growth index is a large-cap growth benchmark commonly used by portfolio managers and has had lackluster performance for the past several years.)

  • Ned Davis Research also shows that the Russell 1000 Growth's Price/Earnings Ratio, Price/Sales Ratio and Price/Book Value Ratio are all below their 24-month averages, and several deviation percentage points away from their two-year averages.

  • On September 27, 2005, Ian McDonald from The Wall Street Journal wrote an article titled, "Big Names May Be in Bargain Bin" in the Money & Investing section of that newspaper. His piece points out how some big-name undervalued stocks could be what he calls the "Thrifty 50."

    And there you have it --- notions why there could be a turn around for large-cap stocks. Then again, with the horrible economic State of Debt that the government has put us in and the huge increases in the cost of gasoline, oil, electric, insurance premiums, groceries, and basic costs of living expected because of the ripple effect that the damage from the last two hurricanes have caused, no matter how sweet a company's earnings may look, expecting up-ticks from even the largest and best managed companies on The Street could be wishful thinking.

    As always, time will tell. Until then, invest carefully and make sure your cash reserves are easily accessible and well stocked.

    To read more articles, please visit the column archive.

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