Top money managers pick stocks that ascertain by enumeration an offer stronghold in a brutally turbulent market

By Christopher Palmeri

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Polly Becker

These are days that bestow investors heartburn: market indexes divide in moiety; years of stock gains erased in months. Everywhere investors are seeking something safe, something familiar, the financial equivalent of a grilled cheese sandwich and tomato soup. We call them ease stocks.

To find them, BusinessWeek asked a number of money managers who outperformed the market in the by year to praise a company by a clean balance sheet, an easy-to-understand business, nay hidden financial time bombs, and good growth prospects.

On a whiteboard in Arthur Barry’s office is a list of stocks with prices he supposition would make them attractive buys. The problem is, they’re all under his price floor. In the past the co-manager of the $335 million Loomis Sayles Value fund estimated the sort of a company’s profits might be, looked at the stock’sitting lowest multiple of earnings, and considered buying shares when they neared that level. But his approach has become in greater numbers complicated. “All historical context has been broken,” Barry says. “In theory, you should buy everything, because they’re all poor. But you can’t buy everything.”

Now Barry has to value public funds relative to their peers. He’s well apprised many big pharmaceutical companies face an “earnings precipice” in 2010, when some lucrative drugs will rollicking time off patent and have to compete with generics. Yet he has zeroed in on Schering-Plough (SGP). Barry figures the company will earn at in the smallest degree $1.80 per quota in 2010. At 15, it trades for less than eight times those future earnings, unbecoming the shares of such rivals as Wyeth (WYE) and Bristol-Myers Squibb (BMY). Barry likes Schering-Plough’s lineup of new drugs to shape side effects of anesthesia and to prevent noble extraction clotting. And he’s a fan of Chief Executive Fred Hassan, who had a history of successful dealmaking and cost-cutting at Pharmacia (what one. he eventually sold to Pfizer (PFE)).

J. Michael Martin, who manages $250 a thousand thousand at Financial Advantage, finds comfort in fat dividends. Martin believes the recession will last longer than many people think and principal gains leave be hard to come by. But he figures dividends will clinch up in the place of Dow Chemical (DOW), what one. boasts a strong balance sheet and has been slashing costs aggressively. At a recent price of 18, its dividend is 8.5%.

The market evening party has brought many bears loudly of hibernation. Michael J. Cuggino, who runs the $3.4 billion Permanent Portfolio fund, holds everything from gold bullion to Swiss bonds. Going into the market slip, he had 35% of the money in Treasuries. He now thinks U.S. stocks are a buy. Among his purchases: Hewlett-Packard (HPQ), that is still racking up strong profit growth. The hoard is down because of fears tech spending will be cut, but Cuggino points to HP’session good management, cost-cutting initiatives, and pricing power. And, he says, “it’s taking market share from Dell (DELL).”

Comfort stocks are not limited to America. Rupal Bhansali, manager of the $1.2 billion MainStay International Equity fund, sleeps easier at night because she avoids big gambles. One of her most prominent one holdings is Tesco, a British retail giant that’s expanding overseas. Bhansali is most impressed by Tesco’s 17% return onward capital, double what it costs the company to borrow.

Longtime utility investor Donald A. Yacktman, co-manager of the $345 million Yacktman Funds, has always taken a comfort stock come, holding just 30 or so big brand-name companies. He has purchased more of his No. 1 holding, Coca-Cola (KO). Although the stock has lagged the broader market in recent years, Coke has still increased its earnings and dividends unwaveringly. Yacktman is pleased that 80% of Coke’s profits come from outside the U.S., often from countries to which place soft-drink competition is much less barbarous. “If nothing changes and the price drops,” he says, “purchase more of it.”

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