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Choices show both value and growth

| Monday, July 5, 2004

Although value and growth investors often see themselves as opponents, I believe that it's sometimes useful to fuse the two approaches.

Once a year, I devote a column to stocks that I think have a foot in both camps. The picks from 2001 and 2002 have beaten the Standard & Poor's 500 index decisively. Last year's crop beat the S&P by a whisker.

The 10 "value plus growth" stocks I picked last year have returned just over 15 percent from July 8, 2003, through June 29, 2004, compared with just under 15 percent for the S&P.

If you had bought and held the seven stocks on my July 2001 list, you would have a 57 percent return through June 25, 2004. The return on the S&P 500 over the same three years was 0.1 percent. If you had bought the 10 stocks on my July 2002 list, you would have enjoyed a 64 percent return. The S&P 500 was up 27 percent over the two-year period.

Now it's time to unveil my value-plus-growth picks for 2004-2005.

China Yuchai International Ltd. (CYD), a Singapore- based maker of diesel engines for trucks, has a five-year growth rate of 138 percent. Yet the stock sells for only 12 times earnings.

ConocoPhillips (COP), of Houston, the largest U.S. oil refiner, has a growth rate of 82 percent. That's because its earnings were depressed in the base year, 1998.

Another energy stock is ChevronTexaco Corp., with headquarters in San Ramon, Calif. The integrated oil company has shown 40 percent average annual growth the past five years and sells for only 13 times earnings.

RenaissanceRe Holdings Ltd. (RNR), a reinsurance company based in Pembroke, Bermuda, showed a 53 percent growth rate. Amazingly, it sells for only 7 times earnings.

Pulte Homes, a Bloomfield Hills, Mich., homebuilder displays earnings growth at a 44 percent rate and a P-E of 10. Everyone is sure that interest rates will rise in the next 18 months and hurt homebuilders. Yet, the scenario that everyone expects is by no means a sure thing.

The same worry holds down the price of LandAmerica Financial Group Inc. (LFG), a title insurance company in Richmond, Vir., and Ryland Group Inc. (RYL), a homebuilder in Calabasas, Calif. They sell for 6 and 7 times earnings respectively.

Sanderson Farms Inc. (SAFM), a chicken farming company based in Laurel, Miss., makes the cut with a growth rate of 29 percent and a P-E of 12.

American Italian Pasta Co. (PLB), out of Kansas City, Miss., makes pasta under the Mueller brand, Golden Grain brand and house brands. With large and modern plants, it has unusually low production costs. It has been hurting recently because of the popularity of low-carbohydrate diets. I think the low-carb fad will pass within two years.

I will give the final spot to United Fire & Casualty Co. (UFCS), the only debt-free company in the bunch.

This portfolio is notably light on technology stocks, so it could trail the overall market if technology is hot.

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