Respite or Resurrection?

By KOPIN TAN | MORE ARTICLES BY AUTHOR

Determining whether last week's gain was a rebound from oversold depths, or if the worst is over.

 

 

A stock market that has fallen for five straight months and absorbed its worst quarterly drubbing since late 2008 is already bracing for the worst. That complicates the task of determining if last week's 2.1% gain was a momentary reflexive rebound from deeply oversold depths, or if we've reached that point where the market has already priced in most of the potential bad news.

One can make a strong case for both. Since World War II, quarterly losses exceeding 14%―the third quarter's slide was 14.3%―have been followed by rebounds 89% of the time the following quarter, and these have averaged gains of 5.3%, says Ned Davis Research. Economically sensitive stocks have already been pummeled, Treasuries snagged their biggest quarterly gain on record, and panicked investors yanked more than $87 billion from U.S. stock mutual funds over the past four months, which marked the worst flight from stocks since 2008.

It doesn't take a lot to surprise a stricken market, and the addition of 103,000 new jobs in September and a slight manufacturing uptick did the trick for now. But it's hard to believe a sustained bull market has begun, says Jason Trennert of Strategas Research Partners, "until policy makers address in a serious manner the great sources of the world's current misallocations of capital," including America's enormous budget and trade deficits and Europe's faltering experiment with a single currency.

Until then, the market's violent swings will continue, with investors torn between reasonably valued stocks on one hand, and the uncertainty caused by Europe's debt contagion and the uncomfortably wide range of possible policy actions on the other.

Any further signs that the U.S. might manage to avoid a recession certainly will limit the downside of a market that has already pulled back 20% or so. It helps that the inverted yield curve that has preceded other recessions is absent this time, and the U.S. isn't exactly burdened with restrictive liquidity demands or tight fiscal policies. Fresh from the worst recession in generations, the U.S. also has fewer excesses and less glut that cry out for serious correcting. After a recent slump, real personal consumption is expected to have risen 1.5% in the third quarter. Weekly unemployment claims are near to or below 400,000, U.S. auto sales have bounced back more than 14% since June, and the 23 retailers tracked by Thomson Reuters saw same-store sales increase 5.1% in September.

Some good signs: The Standard & Poor's 500 index on Tuesday dipped to 1075, an intraday low for the year. But the number of stocks making new lows at the New York Stock Exchange didn't swell above levels seen earlier this year, which technical analysts call "a positive divergence." European stock-market indexes that have been forcing the action stateside also did not plumb fresh hell.

With Washington afflicted with policy paralysis, much will depend on how Europe's unknowable debt drama unfolds. The European Central Bank last week moved again to buttress the Continent's flailing financial institutions, and the Bank of England announced plans to buy £75 billion's worth of assets. But Fitch Ratings downgraded Spain and Italy, after Moody's slashed Italy's government bond ratings.

James Paulsen, Wells Capital Management's chief investment strategist, argues that "the most serious threat for the U.S. economy is not a period of sluggish or nonexistent euro-region growth, but rather a full-blown global financial contagion." But he deems that unlikely, because "the problems are well known and have been for some time." Most U.S. financial institutions also don't hold vast amounts of troubled sovereign securities. Even if contagion were to infect the U.S. financial system, our banks have emerged from the lessons of 2008 to become more liquid and better-capitalized. One hopeful sign Paulsen cites: European and U.S. 10-year government swap spreads have started to part ways, with Euro swap spreads widening to 2008 levels, while U.S spreads remain near their tightest in the past decade.

HAS OBITUARY WRITING EVER BEEN such a competitive sport as when Steve Jobs passed away? Judging by the global group hug―witness the tributes and outpouring of "iMourns" and "iSads" the world over―the planet feels a deep and abiding love for a man who has transformed how we communicate and entertain ourselves in this digital age.

Alas, calls for his company to ascend to the Dow Jones Industrial Average are premature. Apple (ticker: AAPL) is too big for the blue-chip benchmark.

For a start, the Dow is a price-weighted index, which means components with the highest share prices hold the most sway. International Business Machines (IBM), whose shares trade near 182, carries 10 times the weight of General Electric (GE), whose shares trade below 16. With each Apple share pushing 370―twice the starting price of its new iPhone 4S―Apple will affect the benchmark twice as much as IBM, by far the Dow's most influential stock currently. In fact, the Dow's 30 components sport an average price per share of just 48, so Apple's addition could dominate the staid benchmark.

Should the Dow tweak its weighting, so that it might include the true-blue chips of this era, like Apple and Google (GOOG)? Or is it time for Apple to split its stock? Amy Lubas, Ned Davis Research's technology and industrials strategist, counted three prior two-for-one stock splits in Apple's history (in June 1987, June 2000 and February 2005). Shares underperformed the S&P 500 by 1.1% on average roughly a month after these splits, but outgunned the market by 4.3% a year later.

Possible inclusion in the Dow isn't by itself an incentive to split shares. Apple's stock fetches just 12 times projected profits, well below the median 30 times over the past decade. But a rather high 70% of shares are held by institutional investors, and individuals and casual fans alike may be daunted by the high dollar value of each share. Apple reduces the price tags of its toys to make them more widely accessible, so why not its shares? "With a stock split, the stock could open up to a large new set of retail buyers," Lubas notes. And we've all seen how much the world loves Apple.

ON MONDAY, OCT. 3, 2011, the Standard & Poor's 500 index ended the trading day at 1099.23―the same exact level where it closed on this same exact day in 2008.

Comparison junkies can't help but notice a few things: Economic readings generally look less dire today than three years ago (see table). Even the few exceptions were encouraging: The country's unemployment rate stood at just 6.1% on Oct. 3, 2008, but that's because stricken employers had just started laying off workers in those early days after Lehman Brothers collapsed. The unemployment rate today may be uglier at 9.1%, but at least the situation isn't rapidly deteriorating.

While economic data look less menacing today, sentiment has grown far bleaker. Consumers are testy and investors tetchy. Is it market fatigue, or a dawning awareness and grudging acceptance of the stiff price we paid to avert disaster three years ago?

By almost any measure, the U.S. stock market is cheaper today than it was three years ago, says Douglas Kass, president of Seabreeze Partners. The S&P 500 trades at 12 times what companies earned over the past 12 months, compared with 15 times when the index landed at this same level in 2008. A cheaper price tag, quite rightly, isn't reason enough to buy, and fed-up investors want some assurance that the market's recently violent vacillations are behind. Does that make us older and wiser, or just older and crankier? 

Then and Now

The S&P 500 closed at 1099 last Monday, exactly where it landed on that date three years ago. While the economy today looks less dire, investors seem far more fearful―and stocks look cheaper.

Indicator	Oct. 3, 2008	Oct. 3, 2011
S&P 500 Index	1099.23	1099.23
Monthly nonfarm payrolls	-159,000	0
Unemployment Rate	6.1%	9.1%
Weekly Jobless Claims	481,000	395,000
U of Michigan Cons Confidence	70.3	59.4
Personal Income	0.5%	-0.1%
ISM Manufacturing Index	43.8	51.6
ISM Nonmanufacturing Index	50.2	53.3
US Auto Sales (mil)	9.6	10.17
Deficit as % of GDP	-3.1	-8.4
US 10-Year Treasury Yield	3.60%	1.76%
Gold	$835.50	$1,658.32
Crude Oil	$97.65	$77.61
S&P 500 Price-to-Earnings*	15	12
S&P 500 Price-to-Sales*	1.96	1.65
S&P 500 EV/EBITDA *	9.97	8.7
* Trailing 12 months Most recently available data on each date.
Source: Seabreeze Partners, Bloomberg

Buying Puts on Populist Scorn

By STEVEN M. SEARS | MORE ARTICLES BY AUTHOR

Sentiment on Main Street and Capitol Hill is whipsawing shares of Bank of America and Goldman Sachs. So, buy some clever puts.

 

October marks the start of the financial crisis that erupted four years ago―and it seems to suddenly be worsening, with no end in sight.

Now, as then, the financial sector's stock performance and the elevated level of options' implied volatility suggest a new, dangerous phase for the GFC, Wall Street's bland shorthand for the global financial crisis that devoured Bear Stearns and Lehman Brothers, and helped throw the world into economic chaos.

Bearish put options, now as then, are active across the entire financial sector, but the pricing of Bank of America's (ticker: BAC) and Goldman Sachs' (GS) securities suggests the two institutions are being isolated for special punishment. Self-inflicted wounds are hitting Bank of America shares. And investors are concerned about Goldman's future earnings power; some worry that the behemoth could report worse-than-expected third-quarter earnings when it reports later this month.

Bank of America's stock slipped below $6 last week. And its implied volatility has surged just above 100%, reversing course since Warren Buffett's investment―which crushed volatility and led many to believe the financial Frankenstein was suddenly safe for nonbillionaires without sweetheart investment terms.

Goldman Sachs' stock is below $100. Its implied volatility is 72%, compared with 56% for the exchange-traded fund Financial Select Sector SPDR ETF (XLF). Numbers like that normally hound mediocre banks run by journeyman bankers, not financial courtiers to countries and corporations.

We have twice recommended monetizing the pitchfork populism toward the banks, and do so again.

The American people are finally realizing that they're stuck paying big bills for rescuing big banks, just as some of those banks are gouging them with fees (BofA, for one). And still, many people cannot find jobs.

And even those with jobs are struggling to pay bills. The U.S. government is financially weakened for similar reasons, plus the cost of a long war. European governments are in worse shape for even more reasons. In short, the world is angry and depressed, and banks are wonderful targets for rage.

TO PROFIT FROM THESE DYNAMICS, use put options on Bank of America. Any stock below $6 is a perpetual option, but still consider buying one put, like a $5 strike, and selling another with a lower strike price, like a $1 strike, on Bank of America. Select puts that expire in six months to a year. This lets you benefit from high implied volatility, and a stock decline. If you are more dour, buy the $5 strike, pay the volatility premium, and see what happens.

In June, when Goldman Sachs' stock was at $136, we recommended selling a January $160 call that expires in 2012 for $3.20, now worth 12 cents, and buying the January $105 put that expires in 2012 for $2.65, now worth $17.05. At the time, anyone who did that trade was paid 55 cents. We told readers they could alter the strategy and sell the same call, but buy a January $130 put for $8.90, now at $36.34, for a quicker profit (see The Striking Price, "Pricing Those Pitchforks," Barron's, June 4).

It's now appropriate to close the January 160 call at 12 cents, since market-wide correlation is high―and the market is too volatile to ignore any risk. Sell the puts. Then, use some profits to establish a put spread at lower prices that expire in six to 12 months.

Politicians will inevitably play to the angry mob, and Goldman Sachs and Bank of America are easy targets. President Barack Obama and Sen. Dick Durbin (D., Ill.) have already criticized Bank of America for adding a $5 monthly fee for debit-card purchases. That this minor issue evoked a major reproach may suggest Washington is turning against Wall Street; harsher rhetoric will roil the Street and top banks. And just think, campaign season hasn't even begun. 

Comments: steve.sears@barrons.com; http://twitter.com/sm_sears

China Heats Up Hog Futures

By MARSHALL ECKBLAD | MORE ARTICLES BY AUTHOR

The nation's consumers crave the meat, yielding a six-fold jump in U.S. exports of the commodity. The demand looks to continue through the winter, overcoming a traditional decline in the autumn.

 

China's craving for the other white meat will let investors feast on higher U.S. lean-hog futures for months to come.

Pork is a cornerstone of the Chinese diet, and the country's consumers eat more of it than do consumers of any other nation. That dining preference is especially pronounced in the country's expanding urban populations of middle- and upper-class workers. They're using bigger incomes to eat higher-priced food and, in the process, have far outstripped China's domestic pork supplies.

U.S. hog farmers have been more than happy to feed that hunger. Their exports to China are up sixfold over last year, from January through July, according to the U.S. Agriculture Department. Exports to China are approaching 10% of the U.S. export market. But that hasn't been enough. Demand for U.S. pork imports will increase because China remains ravenous.

On the mainland, pork prices currently are 45% higher than they were last year, one aspect of widespread food-price inflation in a country where consumers still spend about 20% of their earnings on food.

While the price of other food staples are soaring, pork is so cherished that Chinese Premier Wen Jiabao last July was compelled to say, "Stabilizing pork markets is a responsibility that the government must not shirk."

China has little choice but to import more pork through the winter. Officials will want to keep prices lower and prevent domestic discord over food-price shocks. They also don't want to ruin the banquets and good cheer of the population when it rings in the Chinese New Year. The Year Of The Dragon begins with a 15-day festival starting in late January.

THE BUILDING DEMAND COULDN'T COME at a better time for U.S. hog farmers. Pork futures usually drop in the autumn. Supplies of animals often grow nearly 20% from August to November, as hogs gain weight more efficiently in the cooler weather. At the same time, U.S. demand weakens, as consumers put away their outdoor grills and eat less hog products.

Lean-hog futures for December, the most actively traded contract, settled Friday at 89.40 cents a pound. That's 15.55 cents higher than prices a year ago and 13.34 cents above the all-time high for a December contract at expiration. The October contract settled Friday at 94.67 cents a pound, and it is also poised to close at an all-time high.

But China's desire for imported pork should wane after the Chinese New Year's decorations are taken down. Beijing has long vowed to be self-sufficient in the meat, and it should demonstrate substantial progress around the end of winter, said Don Roose, president of brokerage firm U.S. Commodities. China has been organizing a modern pork industry while encouraging the nation's farmers to expand herds, in part by importing U.S. corn for feed.

But until then, China's appetite will make U.S. pork futures a tasty play.

Chinese leaders have yet another reason to keep buying U.S. pork: the weakening dollar. China can essentially exchange some of its greenback-based reserves, which have been losing value, and appease its public with cheaper meat.

"It's a perfect trade," said Randy Fisher, president of Fisher Commodities Services. "They can get rid of an asset that's losing value and buy something that they can actually use." 

MARSHALL ECKBLAD covers livestock and agriculture for Dow Jones Newswires and The Wall Street Journal.

China Eyes Slowdown Options

By KOPIN TAN | MORE ARTICLES BY AUTHOR

To Asia's leading economy, a cooling of global growth may come as a relief. And even better, its equity markets have already priced in a dip.

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Chinese stocks have surrendered more than a quarter of their value since last November―including 15% last quarter alone―to plumb depths not seen since the 2008 financial crisis. Clearly, investors fear that China's export-reliant economy will shrivel as Western shoppers scrimp. In the 2008-2009 global recession, for instance, Chinese net exports fell 40% year-over-year, slashing a hefty five percentage points off the growth in the country's gross domestic product. But the past isn't always prologue, and fears of another hard landing may already be amply factored into share prices.

Make no mistake: China must deftly navigate several challenges. Massive bank-funded investments helped shorten its last recession, and now "nonperforming loans will undoubtedly increase in response to the banking sector's exposure to some $1.7 trillion in local-government debt," says Stephen Roach, nonexecutive chairman of Morgan Stanley Asia. But Chinese banks, with loan-to-deposit ratios of just 65%, should have enough liquidity to absorb losses.

Also likely to help the economy: More than 310 million people are expected to migrate to cities over the next two decades, helping to absorb any surplus housing inventory. And the government has moved forcefully to curb real-estate speculation, raising down payments to 50% for second homes and more for third. Prices in 46 of the 70 major cities show property inflation starting to cool.

Unless Europe implodes, "there is good reason to hope for a soft landing to around 8% in GDP growth," Roach writes. Such a breather could bring "welcome relief" for a nation long vexed by rabid resource consumption, labor-market bottlenecks, excess liquidity and rampant inflation. It also could help the government's effort to encourage more domestic consumption.

Last week, HSBC cut its forecasts for many Asian markets, particularly trade-dependent Korea and Taiwan, but China was a notable exception. Chinese growth has become less export-driven, argues Hongbin Qu, HSBC's chief China economist, with net exports accounting for 2% to 3% of GDP in 2010 and 2011, down from 8% to 9% before 2008. If the world slips into a global recession again, net exports would cut China's growth by one to two percentage points this time, Qu says.

Beijing also has been constricting credit to slow growth and fight inflation. That tightening regime likely is near an end, and the government has options if it decides stimulus is now required. To soften the blow of a global recession, Qu thinks "all Beijing needs to do is tweak fiscal policy, rather than to replay the massive 2008-09 stimulus package."

THE PUMMELING OF RESOURCE STOCKS hasn't spared oil producer Cnooc (ticker: 0883.HongKong). Its shares have slid nearly 50% in six months, to just above HK$11 (US$1.41) midweek. In fact, Cnooc is within 15% of its 2008 trough valuation, even though Brent crude oil is roughly US$60 a barrel higher today. Credit Suisse expects Brent crude to hover near $105 a barrel in 2012 and remain above $90 in the longer run, but Cnooc shares seem to be pricing in oil below $70.

The firm expects production to rise 12.5% in 2012 and sees robust reserve additions. "Cnooc appears to have refocused on longer-dated organic, larger-scale, value-accretive projects―specifically the domestic deepwater and unconventional gas plays," notes analyst David Hewitt. His price target: HK$16.60. 

Aussie Win

Australia led the gainers in a mixed week for Asian markets.

E-mail: kopin.tan@barrons.com

Tell Us How You Feel About Stocks

By MIKE HOGAN | MORE ARTICLES BY AUTHOR

Twitter and its spinoffs have now come to Wall Street. They may be good at spotting trends, and trending sentiment definitely has an impact on the market. But don't confuse cause and effect.

 

 

It's not just for checking in with friends and needy movie stars anymore. Twitter and its financially focused satellites have become the digital world's ticker tape.

Twitter (http://twitter.com) spinoffs like StockTwits (http://stocktwits.com), FINIF (www.finif.com) and Stocial (www.stocial.com) have become incubators for stockpickers, and barometers of intraday trends. Okay, much of the tweet stream is market noise, or the usual misdirection from the misguided. Regardless of technology, that's never likely to change.

But there must be some value to them, because the five-year-old Twitter ecosystem and its stock-oriented forums have taken off this year. Twitter itself now counts more than 100 million active users and, contrary to the law of large numbers, another 26 million tweepers (Twitter followers) are expected to start tweeting by year's end. Tweet volume has doubled in 2011, to about a billion tweets a week�not all of which can be attributed to Ashton Kutcher and Demi Moore.

TWITTER DOESN'T HAVE a dedicated stock channel, although market-oriented blurps (also known as financial blurtings) flow from media outlets like @CNBC, @themotleyfool and @jimcramer. Financial-information providers have felt compelled to build satellite ecosystems, starting with StockTwits, which bills itself as "the best place to discover and share trading ideas with real traders in real time." It spun off from Twitter in 2009 to build its own highly graphical platform of market news, sentiment and stock-picking tools. Monthly visitors have tripled over the past year, to 100,000. More importantly, says CEO Howard Lindzon, tweets are now streaming to millions of tweeters via megaportals like Yahoo!Finance (http://finance.yahoo.com). An Adobe AIR application can pull that stream to the desktop (http://sideline.yahoo.com).

Key to the usage surge is a simple-but-elegant feature of StockTwits that lets subscribers follow conversations by ticker, not just by tweeter. StockTwits tweepers add a "$" to the ticker of the company they're discussing to their messages, making it easy to round up all the views fit to print on, say, Apple by searching on "$AAPL." Even privately traded companies, like Facebook ($FBOOK), get tags; and a dollar-sign plus ticker search on the Twitter platform pops up a stream of comments on a given stock.

Unlike personality-driven Twitter, StockTwits users don't have to pick out favorite tweeters to follow�although they can choose that alternative. Lindzon, for one, does. Members who demonstrate expertise and develop a following can make the short list under the StockTwits' Blogs tab. Tweets may be limited to 140 characters, but they frequently contain compressed URLs that pop the reader to a blog or chart on another Website for more information. StockTwits automatically shortens links for the tweeter.

Other providers, such as Stocial (www.stocial.com), have been able to stand on StockTwits' shoulders and build similar ecosystems. Still in beta and available by invitation only, Stocial's formal rollout is expected in a month. The site aggregates Web news, market data and member sentiment on individual stock tickers via member tweets on Twitter, then weighs the relevance of these inputs through natural-language analysis, a computer-generated means of understanding human language.

Stocial relies on the same "$" ticker tag as StockTwits to identify market-related content over Twitter; members can choose tweets as they stream, or select them by comment-relevance/popularity. Stocial charts price spikes against spikes in tweet volume intraday, to identify which way U.S.-listed stocks are trending.

Already online, Financial Informatics, or FINIF (www.finif.com), also compares tweets to overall market sentiment using natural-language processing. It, too, analyzes a news feed and tweets to figure out which way sentiment is trending for different stocks. FINIF, however, also adds corporate SEC filings to the mix: FINIF claims that it can ascertain the net effect of a Securities and Exchange Commission document based on certain key words and, where possible, compares the document with previous filings.

Like Stocial, FINIF charts those stocks getting the most positive and negative sentiment against a company's ticker prices. A spike on these charts suggests it could be a good time to dig down further into the tweets and news streams for more information.

TRENDING SENTIMENT definitely has an impact on the market. But don't confuse cause and effect. Stocial CEO Fahad Kamr guesstimates that about a quarter million Twitter users tweet about the market on a regular basis. That sounds like a lot, but is still only a sliver of the overall number of traders and investors in the market�and that's not the institutional sliver that controls the lion's share of volume and most influences sentiment. Except on that rare occasion when some tweeper broadcasts a piece of inside information, tweet volume doesn't wag stock volume; and tweets may or may not accurately reflect market action. But they can report events before traditional media can.

A tweeter's market acumen is definitely of interest to those wading into Twitter's stock-picking pools. But the only measure of performance is individual popularity or reputation�an indirect and rather squishy metric connected to unquantifiable factors like name recognition or cleverness. It's a far cry from a quantitative-measurement schema like the one Motley Fool has implemented for its 60,000 CAPS members (http://caps.fool.com). Any observer can quickly ascertain a CAPS member's stock-picking ability from several perspectives. But when Web researcher Pear Analytics (www.pearanalytics.com) studied the stream, it concluded that 40% of tweets are "pointless babble."

The takeaway: Tweeting trends could help inform you―but weigh specific trade advice very carefully. There may be collective wisdom in crowds, but most of us individual crowd members don't know what the hell we're talking about. That doesn't stop us from tweeting it.

Tell Us How You Feel About Stocks

By MIKE HOGAN | MORE ARTICLES BY AUTHOR

Twitter and its spinoffs have now come to Wall Street. They may be good at spotting trends, and trending sentiment definitely has an impact on the market. But don't confuse cause and effect.

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It's not just for checking in with friends and needy movie stars anymore. Twitter and its financially focused satellites have become the digital world's ticker tape.

Twitter (http://twitter.com) spinoffs like StockTwits (http://stocktwits.com), FINIF (www.finif.com) and Stocial (www.stocial.com) have become incubators for stockpickers, and barometers of intraday trends. Okay, much of the tweet stream is market noise, or the usual misdirection from the misguided. Regardless of technology, that's never likely to change.

But there must be some value to them, because the five-year-old Twitter ecosystem and its stock-oriented forums have taken off this year. Twitter itself now counts more than 100 million active users and, contrary to the law of large numbers, another 26 million tweepers (Twitter followers) are expected to start tweeting by year's end. Tweet volume has doubled in 2011, to about a billion tweets a week�not all of which can be attributed to Ashton Kutcher and Demi Moore.

TWITTER DOESN'T HAVE a dedicated stock channel, although market-oriented blurps (also known as financial blurtings) flow from media outlets like @CNBC, @themotleyfool and @jimcramer. Financial-information providers have felt compelled to build satellite ecosystems, starting with StockTwits, which bills itself as "the best place to discover and share trading ideas with real traders in real time." It spun off from Twitter in 2009 to build its own highly graphical platform of market news, sentiment and stock-picking tools. Monthly visitors have tripled over the past year, to 100,000. More importantly, says CEO Howard Lindzon, tweets are now streaming to millions of tweeters via megaportals like Yahoo!Finance (http://finance.yahoo.com). An Adobe AIR application can pull that stream to the desktop (http://sideline.yahoo.com).

Key to the usage surge is a simple-but-elegant feature of StockTwits that lets subscribers follow conversations by ticker, not just by tweeter. StockTwits tweepers add a "$" to the ticker of the company they're discussing to their messages, making it easy to round up all the views fit to print on, say, Apple by searching on "$AAPL." Even privately traded companies, like Facebook ($FBOOK), get tags; and a dollar-sign plus ticker search on the Twitter platform pops up a stream of comments on a given stock.

Unlike personality-driven Twitter, StockTwits users don't have to pick out favorite tweeters to follow�although they can choose that alternative. Lindzon, for one, does. Members who demonstrate expertise and develop a following can make the short list under the StockTwits' Blogs tab. Tweets may be limited to 140 characters, but they frequently contain compressed URLs that pop the reader to a blog or chart on another Website for more information. StockTwits automatically shortens links for the tweeter.

Other providers, such as Stocial (www.stocial.com), have been able to stand on StockTwits' shoulders and build similar ecosystems. Still in beta and available by invitation only, Stocial's formal rollout is expected in a month. The site aggregates Web news, market data and member sentiment on individual stock tickers via member tweets on Twitter, then weighs the relevance of these inputs through natural-language analysis, a computer-generated means of understanding human language.

Stocial relies on the same "$" ticker tag as StockTwits to identify market-related content over Twitter; members can choose tweets as they stream, or select them by comment-relevance/popularity. Stocial charts price spikes against spikes in tweet volume intraday, to identify which way U.S.-listed stocks are trending.

Already online, Financial Informatics, or FINIF (www.finif.com), also compares tweets to overall market sentiment using natural-language processing. It, too, analyzes a news feed and tweets to figure out which way sentiment is trending for different stocks. FINIF, however, also adds corporate SEC filings to the mix: FINIF claims that it can ascertain the net effect of a Securities and Exchange Commission document based on certain key words and, where possible, compares the document with previous filings.

Like Stocial, FINIF charts those stocks getting the most positive and negative sentiment against a company's ticker prices. A spike on these charts suggests it could be a good time to dig down further into the tweets and news streams for more information.

TRENDING SENTIMENT definitely has an impact on the market. But don't confuse cause and effect. Stocial CEO Fahad Kamr guesstimates that about a quarter million Twitter users tweet about the market on a regular basis. That sounds like a lot, but is still only a sliver of the overall number of traders and investors in the market�and that's not the institutional sliver that controls the lion's share of volume and most influences sentiment. Except on that rare occasion when some tweeper broadcasts a piece of inside information, tweet volume doesn't wag stock volume; and tweets may or may not accurately reflect market action. But they can report events before traditional media can.

A tweeter's market acumen is definitely of interest to those wading into Twitter's stock-picking pools. But the only measure of performance is individual popularity or reputation�an indirect and rather squishy metric connected to unquantifiable factors like name recognition or cleverness. It's a far cry from a quantitative-measurement schema like the one Motley Fool has implemented for its 60,000 CAPS members (http://caps.fool.com). Any observer can quickly ascertain a CAPS member's stock-picking ability from several perspectives. But when Web researcher Pear Analytics (www.pearanalytics.com) studied the stream, it concluded that 40% of tweets are "pointless babble."

The takeaway: Tweeting trends could help inform you―but weigh specific trade advice very carefully. There may be collective wisdom in crowds, but most of us individual crowd members don't know what the hell we're talking about. That doesn't stop us from tweeting it.

Prepare for a Bountiful Harvest

By JAY PALMER | MORE ARTICLES BY AUTHOR

Seed companies, crop producers and farm-equipment makers are poised to prosper, as food demand increases with population growth.

 

Following two years of healthy gains, farm-related stocks have yielded a bumper crop of losses. The S&P Global Agribusiness Index, which tracks shares of 24 of the world's largest agribusiness companies, has fallen more than 16% this year, while familiar names such as Archer Daniels Midland and Deere are trading at or near 52-week lows.

Investors down on the farm might want to reconsider. Agribusiness companies have been posting strong revenue and profit gains, and the long-term outlook is even brighter for industries involved in feeding a hungry and growing world. Besides, after a particularly punishing third quarter, the stocks are dirt cheap, and some, like Monsanto (ticker: MON) and Deere (DE), offer tempting dividend yields.

The bullish case for agriculture investments is based largely on demographics. According to the United Nations, the world's population is projected to rise to 9.1 billion by 2050, from 6.8 million in 2009. In addition to their expanding ranks, the planet's residents are becoming wealthier and more urban, two trends that are fueling growing demand for meat and feed crops, such as corn and soybeans.

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Curtis Parker for Barron's

The world will have 9.1 billion people by 2050, up from 6.8 billion in 2009. That's a lot more mouths to feed.

The U.N.'s Food and Agriculture Organization estimates that agricultural production will need to increase by at least 70% worldwide between now and 2050 to meet the needs of more protein-hungry populations, particularly in the developing world. That means almost a billion more tons of annual cereal production and 200 million more tons of meat. In the emerging markets alone, the FAO sees annual investments of $83 billion in agricultural production and "downstream" services such as processing and storage, not to mention billions of dollars for seeds, fertilizer, farm equipment and irrigation to coax more production from the land. By 2050, the organization forecasts, the world will have only 5% more arable land than it did at the start of this decade.

Such numbers suggest immense long-term opportunities for a wide array of companies in the U.S. and abroad. "Getting better seeds, fertilizers, water pumps and farming equipment to where it's needed is what the private sector is well suited to accomplish," says Roy Steiner, deputy director of agricultural development at the Bill and Melinda Gates Foundation, a $36 billion humanitarian institution. "Smart companies can make a difference, and make a profit."

So, too, can smart investors, whether in agribusiness stocks and exchange-traded funds or commodities and farmland. For individual investors seeking broad exposure to the market, giant commodities processors such as Bunge (BG) and Archer Daniels (ADM) might be a good place to start. A major oilseed processor and commodities trader, Bunge hit a 52-week low of 54.03 last week, and is down 22% from an April high of 76.13. (Like most farm-related shares, the stock peaked at a much higher level in 2008, at 133.) Shares are trading for a discounted 8.3 times next year's expected earnings of $6.93 a share; 0.15 times estimated 2011 sales of $54.8 billion; and 0.7 times book value. Bunge is likely to benefit from rising demand, especially for sugar. Standard & Poor's has a 12-month price target of 81.

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ADM might be an even better bet. Its shares, at 25.91, have fallen 30% from their 52-week high and are trading at levels last seen in 2006. Earnings are somewhat volatile and are expected to fall to $3.10 a share in the fiscal year ending next June 30 from $3.47 in fiscal '11. Analysts are estimating earnings of $3.39 for fiscal 2013. The shares trade for 8.4 times next year's estimated net, and about 20% of current-year sales. Some analysts see the stock returning to 35 in a year, propelled in part by rising prices for corn sweetener. ADM yields 2.5%, and Bunge, 1.7%.

Investors have been kinder to São Paulo-based BRF Brasil Foods (BRFS), Brazil's No. 1 producer and exporter of poultry, pork and beef. Its American depositary receipts are up 8.6% this year, to 18, and trade at 14.8 times next year's estimated earnings of $1.24 a share. Says Juliana Rozenbaum, an analyst at the Brazilian bank Itaú, "the long-term story supports a prolonged growth cycle." In the near term, the company could benefit from tight beef supplies.

FARM-EQUIPMENT STOCKS such as Agco (AGCO), Deere and CNH Global (CNH) offer another way to play a long-term bull market in agriculture, as well as some positive near-term trends. The companies are benefiting from overseas growth and rising farm income in the U.S., which is expected to jump 31% this year, to $103.6 billion, according to the U.S. Department of Agriculture. That's the highest level, adjusted for inflation, since 1974.

Deere, the world's largest producer of farm machinery, beat fiscal third-quarter earnings estimates and raised its full-year profit forecast for the 12 months ending Oct. 31. "All the macroeconomic trends favor us, and we are having our best year in the history of the company," Deere CEO Sam Allen recently told Barron's. "Between now and 2050, the world must double food output. The right equipment in the right place can boost yields."

Analysts expect Deere to earn $6.44 a share in fiscal '11 and $7.21 in fiscal '12, and some see the stock hitting 90 in a year, up from last week's 66.57. The shares, which peaked in April at 99.80, sell for nine times next year's forecast, and yield 2.5%. Shares of CNH and Titan International (TWI), which makes tires and wheels for farm vehicles, also have been decimated. CNH trades for 7.2 times and Titan for 7.6 times next year's estimated earnings, ratios well below those merited by the companies' expected profit growth.

Without advances in seed science, global food supplies couldn't keep pace with population growth. It's a safe bet, then, that companies such as Monsanto, Syngenta (SYT) and DuPont (DD) will play a large role in shaping agriculture's future. DuPont's Pioneer Hi-Bred division leads the world in hybrid seeds, which are cross-pollinated to include desirable traits. But hybrids' potential is dwarfed by that of genetically modified seeds, manipulated at the molecular level to be hardier and more productive.

Monsanto's Seeds and Genomics unit accounts for 73% of company revenue. "It is critically important that we improve both yield and productivity," says David Fischhoff, vice president of technology at Monsanto. The company is committed to doubling its yield in corn, soybeans and cotton by 2030 from 2000.

Gone are the days when Monsanto changed hands at 140 a share; the stock now trades for 71.29, up 2.4% for the year. Although it isn't a steal at 20.8 times estimated earnings for the August 2012 fiscal year, investors are getting double-digit profit growth and a management team focused on returning cash to shareholders through stock buybacks and rising dividends. Monsanto expects to raise seed prices in the current fiscal year, and is benefiting from growing demand in emerging markets.

The Bottom Line

Farmland is still expensive, but shares of agricultural-commodities companies, seed suppliers, and fertilizer and farm-equipment makers are a lot cheaper than they were just months ago.

As for fertilizer, Wall Street fell in love with the stuff a few years back, but the romance ended badly. As a result, this could be a good time to snap up shares of Potash of Saskatchewan (POT), Mosaic (MOS), Agrium (AGU) or CF Industries (CF), all of which are much cheaper than they used to be. Potash, at 46.49, trades for 10 times next year's estimated earnings of $4.47 a share, even though earnings are expected to rise at a rate twice as much as the multiple indicates. Mosaic, a phosphate and potash producer, has an even lower multiple of 9.4 times fiscal 2012 earnings. The company missed Wall Street's fiscal first-quarter estimate, despite a 77% increase in earnings and a 41% jump in revenue for the three months ended Aug. 31.

Fertilizer stocks are big holdings in two farm-related exchange-traded funds― Market Vectors Agribusiness (MOO), launched in 2007, and the much smaller PowerShares Global Agriculture (PAGG), launched in 2008. Both offer a relatively inexpensive way to play the theme without betting the farm, so to speak, on specific industries. Investors also can choose from a variety of ETFs that track agricultural-commodity futures, including PowerShares DB Agriculture (DBA), the most liquid offering, with assets of $2.5 billion.

FARMLAND IS THE MOST DIRECT WAY to invest in feeding the world, but it is also the least liquid. And, after surging in value in recent years, it is among the most expensive. Analysts at Rabobank calculate that the value of productive farmland has increased at a rate between 20% and 70% in the past five years, depending on location, with gains driven by higher commodity prices, low interest rates and a scarcity of available land―some of which has been acquired by financial buyers such as pension funds. The bank sees no near-term correction but thinks prices could fall some in three to seven years, as production costs and interest rates rise.

Legendary investor Jim Rogers views farmland as a long-term investment but notes that it's cheaper outside the U.S. "Myanmar is opening up as we speak, and there will be enormous opportunities there," he says. Angola and Cameroon also offer "magnificent opportunities in farmland."

Fortunately, you don't have to go to Cameroon to find compelling agribusiness investments these days. There are plenty ripe for the picking on Wall Street. 

Up on the Farm

Agribusiness stocks and exchange-traded funds have been hammered this year, leaving many at tempting levels. Some, such as ADM and Deere, also pay nice dividends.

	Recent	YTD	Market	EPS	EPS	P/E
	Price	Change	Val (mil)	2011E	2012E	2012E
BRF Brasil Foods /BRFS	$18.34	8.6%	$16	$1.14	$1.24	14.8
Potash of Saskatchewan /POT	46.49	-9.9	40	3.73	4.47	10.4
Deere /DE	66.57	-19.8	28	6.44	7.21	9.2
Archer Daniels Midland /ADM	25.91	-13.9	18	3.95	3.10	8.4
Source: Thomson Reuters

	Recent		Assets	YTD	3-Yr.
ETF/Ticker	Price	Category	(mil)	Return	Return
Market Vectors Agribusiness /MOO	$44.94	Equities	$4,811	-16.06%	19.96%
PowerShares Global Agriculture /PAGG	26.53	Equities	110	-17.09	13.69
PowerShares DB Agriculture /DBA	30.10	Commodities	2,505	-6.96	5.55
Sources: Morningstar; company reports

RICHARD THOMPSON, a Barron's research assistant, provided additional reporting.

On Sale Now! Top Stockpickers

By MICHAEL SHARI | MORE ARTICLES BY AUTHOR

This year's disastrous market has tripped up many good portfolio managers. Barron's selects five whose funds are bargains.

 

Many good companies go through dry spells: their strategies fall flat, or don't produce the stellar results Wall Street had come to expect. And investors don't hesitate to jump ship. But what's sometimes left behind -- think McDonald's, Nike, IBM or Coca-Cola -- is a resilient executive team that adapts, or simply decides to press ahead until sentiment changes. Those can turn out to be great stock picks. The same can be true of good mutual-fund managers.

A number of experienced, well-respected hands with top-tier long-term track records have seen their performances fall off the charts this year, particularly this past summer. So we decided it was a good time to look for some possible bargains for fund investors. With the help of Lipper, we screened through hundreds of candidates searching for portfolio managers whose funds had a decade of excellent performance, but had seen their net asset values shrink in 2011 and their rankings slip badly.

"The idea is that you have somebody who has previously found great reward in the market, whose ideas have been appreciated by others eventually, but they have sunk low," says Jeff Tjornehoj, head of Lipper Americas Research. "Did they completely lose their talent overnight? I doubt that. Instead, you are able to buy their portfolio at a discount."

Research does suggest there's a performance pendulum swinging over time. A recent study by Michael Mauboussin, chief investment strategist at Legg Mason Capital Management, found that mutual funds that performed in the bottom quartile in the 1990s rose an average of 7.8 percentage points in the 2000s. Funds in the top quartile in the '90s fell by the same amount of percentage points.

Aside from good long-term returns and reliable management, we've also tried to create as diverse an equity group as possible. Making our cutoff was Vincent Sellechia (with co-manager Dennis Delafield) of the Delafield Fund (ticker: DEFIX); Jeffrey Coons of Manning & Napier Equity Series (EXEYX); David Herro of Oakmark International (OAKIX); Robert Fetch of Lord Abbett Fundamental Equity Fund (LDFVX); and Bert Boksen of Eagle Mid Cap Growth Fund (HAGAX).

Each manager's situation differs -- Eagle's Boksen concedes he "made a bad call" on cyclicals and tech, and Coons got too reliant on companies with government contracts -- but they all shared the same pain. Fetch notes that although Fundamental Equity invests across all market capitalizations and employs varied strategies, it didn't get any offsetting breaks to cushion the market's blow. Fundamental Equity's NAV has fallen by 18.4% since July 7. And yet, the fund's 10-year average annual gain is a healthy 5.4%, better than 83% of the multi-cap core funds that Lipper tracks.

"More than at almost any time in history, correlations within the market are at all-time extremes, meaning the vast majority of stocks are moving with the market," says Fetch, who has more than 30 years of experience.

That situation won't last. Lewis Altfest, chief investment officer at Altfest Financial Management in New York, who manages more than $100 billion for high-net-worth investors, started moving some clients into Oakmark International in late September. He was impressed that portfolio-manager Herro had stuck to his beliefs and had even increased his bet on miserably performing European banks.

"It's better to get into a fund when it's underperforming than when it's at the top of its game," says Altfest. "The ones that have just done outstanding are vulnerable to a temporary decline." We agree, and so here's our list of five of the most promising underperfomers.

Delafield Fund

Co-managers, Vincent Sellechia and Dennis Delafield
10-Year Avg. Return: 9.6%, 2011 Return: -16.2%

It's not too hard to spot the drag on Delafield's recent performance. The $1.1 billion vehicle keeps about twice the typical mid-cap value fund's investment in industrial stocks, which are very sensitive to the sputtering U.S. economy. But veteran co-managers Vincent Sellecchia, 59, and Dennis Delafield, 75, have seen this all before and view it as an opportunity.

The two have been busy snapping up shares of efficient manufacturers that have gotten hammered. Following a simple formula since their start in 1993, they focus on a company's liabilities in order to calculate how much it will "cost" to own the shares for a couple of years. They're willing to absorb a loss for a year or so while waiting for other investors to recognize the company's earnings prospects.

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Peter Murphy for Barron's

Delafield's Vincent Sellechia and Dennis Delafield

"We take advantage of what the market presents to us during downturns, and that becomes the fuel for our performance in subsequent quarters," says Sellecchia.

He is "very comfortable" with the stocks in the fund, even though it lost 16.2% of its value year-to-date, well behind the Standard & Poor's 500's 7.4% decline. The fund has lagged behind 90% of its peers. Arthur Cohen, a financial advisor in North Brook, Ill., who has put his clients' money into Delafield, is confident that performance will snap back toward the fund's 10-year record of a 9.6% annualized return before long. That 10-year gain beats 90% of the fund's rivals.

Delafield fell 37.6% in 2008, slightly worse than the S&P 500's decline. Then it came roaring back in 2009, delivering a 54.9% return�nearly double the S&P's rebound.

The managers have bought more of their favorite stocks. One is Kennametal (KMT), a machine-tool maker whose orders were up 27% for the three months through Aug. 31. The stock fell 32% in three weeks of panic-selling from July 19 through Aug. 8. They believe it will recover nicely as demand for machine tools surges in emerging markets.

Manning & Napier Equity Series

Manager: Jeffrey Coons
10-Year Avg. Return: 5.1% , 2011 Return: -11.5%

Jeffrey Coons clears his head every morning with a six-mile run at 4 a.m. A protégé of growth investor Bill Manning since joining Manning & Napier in 1985, straight out of the University of Rochester, Coons needs to stay cool and collected these days. His Equity Series fund has fallen 11.5% this year, behind 75% of his multi-cap growth-fund peers. There's reason to believe he'll be back. The fund has fallen short of the Russell 3000 during 54 different six-month periods, but it's beaten the benchmark in 99 six-month periods. Over nearly 10 years, Equity Series is up 5.1%, twice the gain of the S&P 500, and better than 92% of its rivals, says fund researcher Morningstar.

The $1.8 billion Equity Series has thrived by buying growth stocks whose earnings are rising at a multiple of the U.S. economy. Using discounted-cash-flow analysis, Coons aims to select stocks that can rise at least 20% within two years. A recent example, Amazon.com (AMZN), is a stock Coons had previously dismissed as overpriced. But the shares fell more than 20% in late summer, and he believes they can retrace that move. Coons expects Amazon's earnings to grow at a compound annual rate of more than 40% over the next three to five years, mainly because of the online retailer's vast potential to grab market share from bricks-and-mortar merchandisers.

Photograph for Barron's: Rhea Anna

Jeffrey Coons

By seizing such opportunities, Coons, 48, hopes to improve Equity Series' performance, which he notes has been hit by the unusually high correlation of losses across styles and capitalizations. In another recalibration, Coons has been selling stocks that depend on government spending, which he expects Washington to cut. He's shed shares of Boeing (BA) and one of its suppliers, Spirit Aerosystems Holdings (SPR).

Says Coons: "Markets turn very quickly, and this market is quite volatile. We think we are quite well-positioned."

Oakmark International

Manager: David Herro
10-Year Avg. Return: 8.9%, 2011 Return: -14.3%

If you don't believe the world -- or perhaps just Europe and Japan -- is about to end, then this could be the fund for you.

David Herro's well-regarded Oakmark International is concentrated in European banks and in Japanese and European industrials whose shares collapsed along with their economies this past spring and summer. A dyed-in-the-wool value investor, he has been combing through his holdings, buying more of the stocks that he believes have been unfairly trampled. An avid bicycle racer, Herro says he knows that every steep downhill is followed by a steep uphill and "you always end up where you started."

Herro, 50, is on a tough uphill stretch right now. He likes some of the banks that other investors have dumped as Europe's sovereign-debt woes spread. Among them is BNP Paribas (BNP.France), which has fallen 41% since midyear, and Banco Santander (SAN.Spain), which has dropped 25% since mid-February. Oakmark has also been a big buyer of car-maker Daimler (DAI.Germany), which is down more than 40% since late July. And, if that's not bucking sentiment, Herro also bought shares of Toyota (7203. Japan) after the tsunami.

He's willing to wait two to five years for these bets to pay off. "We are wildly positioning ourselves for when things come back, while most people are probably headed toward safety," says Herro, who's been running the $7.1 billion fund since 1992. "Usually, it's after periods like this that we do the best."

The fund surged 39.5% in 1999, a year after it fell 7% as the dust settled from the emerging-markets crisis. And it jumped 56.3% in 2009, after nosediving 41.1% in 2008.

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Photograph for Barron's: Callie Lipkin

Oakmark International's David Herro

Herro expects BNP Paribas to cover its Greek exposure of 3.5 billion euros ($4.7 billion) with �5 billion of profit this year. He's confident in Banco Santander, because Brazil now accounts for more of its profit than indebted Spain.

Clients are undaunted by the fund's 14.3% drop this year, a worse showing than 65% of Lipper's international large-cap core funds. Oakmark had net inflows in the first seven months of 2011. If Herro is right, in a couple years, his performance will revert toward his 10-year record, which includes annualized 8.9% growth, beating 93% of his peers.

Lord Abbett Fundamental Equity

Manager: Robert Fetch
10-Year Avg. Return: 5.4%, 2011 Return: -11.8%

When Robert Fetch, just out of Seton Hall's MBA program, started managing equity portfolios in the 1970s, the fund world didn't have value and growth boxes. But by the time he took over the Lord Abbett Fundamental Equity Fund in 2001, he'd honed his own value style of stock-picking.

He hunts for companies of all types and sizes that offer strong earnings growth at reasonable valuations. Fetch wants to buy shares whose potential increase in price is three times greater than its risk, as measured by standard deviation. For a decade, the drivers of Fetch's $3.8 billion fund were industrial, energy and health-care stocks, which more than doubled in his two-year investment horizon. Among them were Wabco Holdings (WBC), which makes brake systems for trucks, Halliburton (HAL), the oil-service outfit, and Watson Pharmaceuticals (WPI), a generic drug maker.

Because of his emphasis on value, Fetch, 58, avoided much of the dot-com crash when he ran a similar institutional fund. His price-conscious approach also steered him away from banks before 2008's mortgage crisis. The fund is up 5.4% for 10 years, topping the S&P 500 Index by almost two percentage points and beating 81% of his multi-cap-core peers.

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Matthew Furman for Barron's

Lord Abbett's Robert Fetch

Fetch believes many of the stocks in his portfolio got hit even though they're less directly affected than others by weak economic growth, a shrinking job market, or the inability of the U.S. and the European Union to manage their debt. So far this year, the fund, which owns 106 stocks, is down 11.8%, behind 79% of its peers. Among its worst laggards were Ford Motor (F), down 48% from peak to trough this year, and banks like PNC Financial (PNC), and State Street (STT), which have lost 19% and 30%, respectively, this year.

Like Herro, Fetch is a man of conviction. He's buying up some of the fastest-falling stocks in his portfolio because he sees promising fundamentals and low prices. A case in point is Ford, which reported its biggest profit in 11 years for 2010. Ford CEO Alan Mulally understands the auto industry well enough to keep cutting costs, paying down debt and rolling out popular new models, says Fetch. Americans, he notes, are just itching to replace aging cars.

Lipper gives this fund its highest ratings for consistent returns and capital preservation, which suggests it can regain its form, says research director Tjornehoj.

Eagle Mid Cap Growth

Manager: Bert Boksen
10-Year Avg. Return: 8.6%, 2011 Return: -13.9%

Anyone investing in Eagle Mid Cap Growth right now is "picking a point in time that is probably unique," says veteran manager Bert Boksen. "We have never been in the bottom quartile before."

Over the last 10 years, the $325 million fund is up 8.6%, well above the S&P 500's 5.3%. That puts it in the top 4% for mid-cap growth funds. It's down 13.9% so far this year, dropping it to the 86th percentile.

Part of the problem has been its cyclical and tech holdings, some of which Boksen is selling. The worst-performing stock was coal producer Walter Energy (WLT), which fell 53% from mid-April through September, as cyclical demand from the metallurgical industry fell.

Among its weakest tech stocks was Akamai (AKAM), which fell 62% from mid-January through September, as its video-streaming software lost ground. Boksen, a 63-year former elementary-school teacher in New York's South Bronx, bought more Akamai shares while it was falling, before throwing in the towel.

Boksen focuses on companies with accelerating earnings growth, strong balance sheets and some sort of catalyst to kick-start the shares' upward move. He's searching for stocks that can rise at least 20% within two years. Boksen hedges his bets by avoiding big stakes in a single stock or single sector.

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Photograph for Barron's: Riku

Eagle's Bert Boksen

The strategy allowed Eagle Mid Cap to minimize its losses in the 2000 dot-com crash, when it fell less than a percentage point versus the broad market's 10% decline, though it performed slightly worse than the S&P 500 Index in 2008's meltdown.

Based on Boksen's record, Morningstar analyst Janet Yang expects the fund to resume its strong performance.

The manager has changed course a bit to focus on cheap stocks that aren't cyclical and can deliver decent returns even in a lethargic economy. "We like areas that are stable, like vitamins, beauty supply and health care," says Boksen, who keeps a drawer full of vitamins and fish-oil tablets in his St. Petersburg, Fla., office.

Eagle Mid Cap has added Sally Beauty Holdings (SBH), a salon chain and beauty-products supplier, to its portfolio. And Boksen's bolstered existing positions in vitamin and health-drink maker Herbalife (HLF), which has surged 56% year-to-date, and vitamin retailer GNC Holdings (GNC), which is up 24% since its initial public offering on April 4. The fund has also bought health-care stocks like Stericycle (SRCL), a medical-waste disposal company that's trading about where it was on Dec. 31.

As with all five of these funds, a little stability in the portfolio would be a welcome relief.