Reprinted from
Louis Rukeyser's
MUTUAL FUNDS
[GRAPHIC: Photo of Louis Rukeyser upper right corner]
ZEN AND THE ART OF GROWTH-FUND MANAGEMENT
This Reno money man bets on a fast-spinning wheel of fortune.
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The Nevada city of Reno symbolizes either divorce or gambling to the
average American, but to Arthur J. Bonnel it means home and investing. The
University of Nevada grad has lived there for 30 years, and the chance to stay
there was a major inducement when he became the financial world's most
sought-after free agent in 1994. As manager of MIM Stock Appreciation Fund from
1987 until March 1994, his aggressive-growth approach had taken him to the top
of virtually every rating heap, with a five-year annualized return above 18%;
FORTUNE in 1993 called him the best growth-fund manager in America. Bonnel's
successful wooer turned out to be the fast-growing United Services group of San
Antonio, which offered him a 50% raise, a fund with his name on it--and the
right to remain in Reno.
Bonnel's fledgling fund (800-426-6635; no load) will be listed in
newspapers as Accolade Bonnel Growth when it gets the required $25 million in
assets. Meanwhile, it's off to a characteristically strong start; since Art
began investing last November, the average growth fund has gained 2.08%--but
he's up by 4.72%. Given his exceptionally strong track record, his is clearly a
stride worth observing.--LR
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ART, AFTER RISING CONVINCINGLY TO THE TOP OF THE MUTUAL FUND HEAP AS MANAGER OF
MIM STOCK APPRECIATION, YOU WENT OUT ON YOUR OWN A YEAR AGO. HOW DOES YOUR NEW
FUND DIFFER FROM YOUR OLD?
I'm using the same basic philosophy that got me where I am today. I have a
diversified fund, which means I can buy most anything--and I do. I can only put
5% in any one company, and I can't put more than 25% in any one industry. I like
that diversification.
YOU HAVE SPECIALIZED PRIMARILY IN MEDIUM-SIZED GROWTH COMPANIES. WHAT DOES THAT
DEFINITION MEAN TO YOU?
It means market capitalization of around $1 billion. Right now, my average
market cap is around $1.7 billion, but that's tilted to the upside because of
two big stocks: MOTOROLA, with a market cap around $34 billion, and MCDONALD'S,
with about $21 billion. We'll probably average between 75 and 100 stocks, with a
medium cap of around $800 million.
WHAT ARE THE KEY CRITERIA YOU USE IN SELECTING STOCKS?
I look at four basic things. First, I look at earnings; a company has to be
making more money in this current quarter than they did in last year's
corresponding quarter. Second, I look at the current ratio; I like to see
current assets (cash and accounts receivable) in the range of twice as high as
current liabilities (what a company will have to pay in less than a year)--I
don't want the company to be in a financial bind. Third, I like to see low debt;
I seldom like to see much more than 30% debt-to-equity, keeping in mind that
every industry is different. Fourth is management, and I want to see management
motivated; I want them to try to make money through capital gains--i.e., I want
them to have some stock in the company.
DO YOU AUTOMATICALLY SELL A STOCK IF IT FAILS TO INCREASE EARNINGS YEAR-
OVER-YEAR IN A SINGLE QUARTER?
Yes, I do. If management says we had a bad quarter, but we think sales are
going to come around next quarter, I say fine--I'll take my money and go play
someplace else, and if you do come up next quarter with positive earnings, well,
then I'll go back in your stock. I don't accept any excuses from management. I
want them to perform.
WHAT ARE THE BEST EXAMPLES OF STOCKS THAT CURRENTLY MEET YOUR CRITERIA?
I mentioned Motorola and McDonald's. McDonald's is very attractive at the
present time. Some of the numbers aren't quite as high, but we're looking at a
big, big company that has had tremendous growth over the years. The company this
last year had earnings of $1.68; I think they're going to go to about $2. People
who are employed by the company own 3.1% of the stock. It has a good long-term
track record, and these people are very focused. They found their drive-through
window customers have been increasing, and they have found they can cut the size
of their stores. Now, when you cut the size of the stores, that cuts down the
cost of actually designing the building. You don't have as much energy use. You
don't have to heat as much. And you have smaller buildings--that's just more
cost efficient. And that seems to be flowing right down to the bottom line.
[GRAPHIC: Inset photo of Art Bonnel]
Motorola is another real interesting company. In my fund, we don't focus on
foreign companies--I can buy foreign companies, but do you need to buy a foreign
company? And my answer is, if you want to spend the time, yes, but if you look
at a company like Motorola, they get 60% of their sales from overseas. And
everyone wants a cellular phone. In much of the undeveloped part of the world,
they have never laid phone lines, so people need cellular phones--the number of
worldwide cellular subscribers last year jumped 50%. Here's a company that's
having earnings increases in the 20%-30% range, quarter after quarter,
tremendous growth with tremendous potential with the product. And insiders own
about 4% of this stock, so again management has a good chunk.
Another very exciting company that just turned is STONE CONTAINER, a leader
in container-board and corrugated products, draft paper, bags and sacks. They
were losing money for the last four years, but they showed a profit in the
second quarter. I think they're going to earn $1 or $1.50 in the coming year.
Management owns 12%. They're a little heavier on debt than I like, but they're
turning this around. And I don't mind that debt--again, you have to look at the
industry.
WHAT ARE SOME OF THE SMALLER COMPANIES THAT APPEAL TO YOU NOW?
I'm high on COLONIAL DATA TECHNOLOGIES, which provides caller-ID devices
for telephones. These are becoming real hot items. This is a company that has no
debt, had earnings in the last quarter up 200%--and management owns around 58%
of the company. A lot of people want to know, "Who is calling me?" The company
is in 42 states, and they're looking to be licensed in all 50. But there's
something that investors have to be careful of here: AT&T has given them a
license, with no expiration date, to manufacture and sell this caller-ID
product--but AT&T can cancel the license for breach of contract. There's another
smaller company that I think is real exciting: LOJACK, the developer of a unique
system that assists law-enforcement personnel in locating, tracking and
recovering stolen vehicles. You put a computer chip in your car, and if someone
steals the car, the police can turn on a radio--and the system in your car will
respond to a certain number of codes. It goes beep, beep, beep, and the police
can locate exactly where your car is.
<TABLE>
LIFE IS SHORT, SO ART IS LONG . . .
<CAPTION>
Rev
Recent 52-week ($ billions) Earnings* Debt/Equity
Stock (Symbol) Price High/Low 1993/1994 1994/1995 ($ billions)
===========================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Motorola (MOT) ............. $61.50 $63.13/$42.13 $17.0/$22.3 $3.24/$4.06 $1.1/$9.1
McDonald's (MCD) ........... 33.88 34.00/25.56 7.4/8.2 1.66/1.90 3.2/6.9
Stone Container (STO) ...... 22.00 22.00/12.25 5.1/5.7 -1.90/1.94 4.2/0.7
($ millions) ($ millions)
- ------------------------------------------------------------------------------------------------------------
Colonial Data (CDT) ........ $15.50 $17.00/$3.88 $17.4/$13.8 $1.60/$1.50 $0.0/$28.4
LoJack (LOJN) .............. 7.13 11.38/5.13 23.0/30.0 0.11/na 1.3/15.2
- ------------------------------------------------------------------------------------------------------------
*Consensus estimates. SOURCE: Zacks.
</TABLE>
HOW DOES THE OVERALL MARKET LOOK TO YOU RIGHT NOW?
I think the market looks very good. There are always going to be
corrections, and many people are pessimistic, but I am very optimistic
long-term. I can see the Dow near 8,000 by the year 2000.
And I think that 1995 is going to be a very good year. Not only do I think
the Federal Reserve is close to finishing tightening, but I think there's a good
chance the Fed will loosen by the end of the year. If that's true, we're going
to have a super market. My advice to any investor is: If you see any 50- or
100-point drop, just step right up to the window and place your order.
FOR WHOM IS YOUR FUND SUITABLE, AND WHO SHOULD NOT BUY IT?
People who have less than a three-year time horizon should not buy the
fund--because we do fluctuate. We're more on the aggressive end. I think the
fund is suitable for most people who have a three- to five-year horizon.
WHAT'S THE MOST IMPORTANT LESSON YOU'VE LEARNED IN INVESTING?
Do your own thinking. That's how I have made money. I very seldom read
research reports. I do my own thinking, and it has done very well for me. And
all our research is done in-house.
SO, YOU'RE BASICALLY A NUMBERS CRUNCHER?
Totally a numbers cruncher. People ask me how I define myself. I tell them
I'm 90% fundamental--and the other half technical! But really we are 90%
fundamental and 10% technical. You have to look at the chart. Is there a massive
overhead of supply? What's the general trend of the stock? Is there enough
liquidity? But we use the chart as the very last thing that we look at.
Part of my pension money is invested in the fund, so I am investing my own
money. And also, my Mom's got some money in the fund. And, you know, I've got to
keep in good with Mom.
IS MOM HAPPY SO FAR?
Oh, she's very happy.
- ----------
To subscribe to Louis Rukeyser's Mutual Funds at a special half-price rate, call
1-800-892-9702.
- ----------
Reprinted from LOUIS RUKEYSER'S MUTUAL FUNDS * 1101 King St., Suite 400,
Alexandria, VA 22314 * 800-892-9702
For more information, including charges and expenses, call 1-800-US-FUNDS.
Please read the prospectus carefully before investing. Past performance is no
guarantee of future results. This reprint is not a solicitation for any funds
listed herein other than United Services Funds. Investment return and principal
value will fluctuate so that you may have a gain or a loss when you sell shares.
Average annual total returns through 5/22/96: one year 60.44%; since inception
(10/17/94) 50.06%.
