INVESTOR'S BUSINESS DAILY
"The Newspaper for Important Decision Makers"
- -------------------------------------------------------------------------------
Monday, March 18, 1996
_______________________________________________________________________________
BONNEL LETS FINANCIALS SPEAK FOR COMPANIES
Growth Fund Seldom Uses CEO Tete-A-Tetes To Make Picks
------------------------------------------------------
BY DOUG ROGERS
Investor's Business Daily
Arthur Bonnel doesn't get involved much with the management of companies he
buys for his UNITED SERVICES BONNEL GROWTH FUND.
He thinks it would be much harder to sell a stock after coming under the
spell of a CEO's exuberance about the company he or she heads. Bonnel will sell
any company that doesn't meet his four main criteria, which includes positive
earnings growth every quarter on a year-over-year basis.
_______________________
MAKING MONEY IN MUTUALS
-----------------------
"I have no emotional attachment whatsoever with stocks I buy," he said.
Bonnel uses other means to keep track of management's progress and commitment to
its business. These factors are covered largely by the portfolio manager's other
criteria, which are:
* Growing earnings. "I don't care if it's 100% or 5%, it just has to be
growing," he said.
* Current ration no less than 2-to-1. Having relatively low current
liabilities to current assets gives Bonnel confidence the company can handle its
bills. "This tells me the management can concentrate on growing the business
rather than how to pay off its current liabilities," Bonnel said.
* Low debt-to-equity. Anything over 10% to 15% makes Bonnel nervous.
* Management ownership of 10% to 15% of the company's shares. As a
substitute, Bonnel will accept some other link between management's compensation
and the company's performance. "But I want it tied to how the company performs,
not how the stock performs," Bonnel said.
These numbers tell almost all Bonnel needs to know about how capable
management is with carrying out its business plan.
[GRAPHIC: Inset photo of Art Bonnel]
In addition, Bonnel prefers companies that trade at least 40,000 shares a
day. That allows him, with his size fund, to establish a meaningful position --
or exit -- without impacting the stock's price.
Although he owns Sears Roebuck & Co. and a few other large-cap names, his
fund has a median capitalization of $400 million to $500 million, which he
describes as midcap.
Bonnel rarely ventures from his Reno, Nev., office to hob-knob with those
running the businesses he owns. His style is in stark contrast with many other
portfolio managers who spend much of their time visiting factories and offices
of companies, attending conferences, handling products, visiting stores.
But so far, his homebound style hasn't hurt. His fund, which was launched
in late 1994, rose 45% last year and is up 6% this year, 9% in the past 12
weeks. Bonnel moved to San Antonio-based United Services from MIM, where he
managed MIM Stock Appreciation for seven years, until mid-94. That fund fell 10%
that year but was up an average 14% during the five years ended Dec. 31, 1994.
Bonnel Growth is fully invested and highly diversified. It owns 91
companies that are in 60 industries. As of Feb. 29, it had 5.66% of its $48
million assets in software companies, 6.42% in pharmaceuticals and 12% in
retail.
Retail has been acting well lately. The Investor's Business Daily
Retail/Wholesale Office Supply industry subgroup has climbed 20% this year.
Retail-Apparel/Shoes is up 24%. In addition, among groups showing the greatest
new highs on Thursday were Retail-Department Stores and Retail-Major Discount
Chains, with 20% each.
Bonnel owns SEARS, TOMMY HILFIGER CORP., THE GAP INC., KOHL'S CORP., PIER
ONE IMPORTS INC., CLAIRE'S STORES INC., OFFICEMAX INC. AND JONES APPAREL GROUP
INC.
Though these groups have already moved, Bonnel thinks they have several
months more to go. Despite improving fundamentals, some are still getting poor
notices from analysts. It will take a while before ownership of these stocks
becomes widespread and vulnerable to profit-taking, Bonnel says.
But he also cautions that any of these companies could be pushed out of the
portfolio when earnings season hits next month.
Bonnel is busiest during the quarterly ritual of earnings announcements. He
says he relies on one analyst to provide him with earnings data on companies he
follows.
Although the average growth rate of the fund's holding is about 40% to 50%,
Bonnel doesn't look for "prodigious growers," he said. "When they miss estimates
by a penny, you can get killed in those. I'm perfectly happy with a company
growing 10%."
Bonnel thinks this will be a good year for stocks, with the Dow industrials
likely to reach the upper 6000 level before moving the upper 7000 in 1997.
He says he's not at all bothered by the recent volatility.
"Volatility creates liquidity and volume," he said. "That allows you to
take positions in companies."
- ----------
Call 1-800-4-BONNEL (800-426-6635) for a free prospectus containing more
complete information, including fees and expenses. Please read prospectus
carefully before investing. Past performance is no guarantee of future results.
Investment return and principal value will fluctuate. You may have a gain or a
loss when you sell shares. Average annual total returns as of 4/30/96 for 1
year: 54.10%, since inception (10/17/94): 44.61% This reprint is not a
solicitation for any funds listed herein other than United Services Funds.
