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22 noviembre 2006

Invest Against the Headlines

Since 2000, boring stocks have been the best investments. Just take a look at the biggest winners in the Dow from bubble-time 2000 until now: Altria is up more than 370% since January, 2000, and Caterpillar (NYSE: CAT) has jumped more than 215%

There's one big, easily perceptible difference between the winners and losers, and that's the amount of media blabber and public adoration for the companies in question.

Let's start with three of the losers.

Company - Return Since 2000

Lucent Technologies (NYSE: LU) - (96%)
Yahoo! (Nasdaq: YHOO) - (72%)
Time Warner (NYSE: TWX) - (70%)

Notice anything? Of course you do. During the bubble, these companies were in the news 24/7. These companies were going to lead us into the next century. They were not only changing our lives through technology, but they were also making millionaires all around the country. These companies could do no wrong -- unless you bought them for your portfolio in January 2000.

Let's contrast that with a half-dozen companies that weren't front-page news fodder all day, every day, back then. Note the returns.

Company - Return Since 2000

Chesapeake Energy (NYSE: CHK) - 1,325%
Coventry Health Care (NYSE: CVH) - 1,296%
Pulte Homes (NYSE: PHM) - 616%

Thinking back to 2000, it's easy to see the disconnect. While the tech bubble kept inflating, no one was interested in dusty old energy producers, health-care companies, or -- heaven forbid -- homebuilders. And because these companies were ignored, or even openly reviled, their stocks were priced accordingly. When they delivered consistent growth and profits, the stock prices soared, leaving the owners of all those "can't miss," new-world technology stocks wondering what happened.

The best investment opportunities are not to be found in the companies you hear the most about. In fact, enthusiasm is always a great indicator of an overpriced stock.

The best long-term opportunities are found, as always, in companies that get little or negative press and are underpriced accordingly.