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[GRAPHIC: PHOTO OF LOUIS RUKEYSER TOP LEFT CORNER]
[GRAPHIC: PHOTO OF ART BONNEL TOP RIGHT CORNER]
REPRINTED FROM LOUIS RUKEYSER'S MUTUAL FUNDS
JULY 1996
THE RUKEYSER INTERVIEW
GROWTH IS NO GAMBLE
Arthur J. Bonnel loves to live in Reno, where he has made his home for
more than three decades, and in the past year this amiable University of Nevada
graduate has enabled us to deliver a hefty jackpot to our readers. When I
featured him in The Rukeyser Interview in March 1995, his fledgling fund--which
for a while had "Accolade" or "United Services" as a prefix but is now,
appropriately, called simply the Bonnel Growth Fund (800-426- 6635; no
load)--was less than six months old. That's much too young by our usual
standards, but as I noted at the time, Art's "exceptionally strong track record"
as manager of MIM Stock Appreciation Fund from 1987 to 1994 made his new venture
worthy of special attention--and a special look.
Wow! Art's fund, up just 4.72% when he last appeared on this page
(though even that was more than twice as well as most growth funds were doing
then), has now soared 85.5% since its October 1994 inception--and the Wall
Street Journal has just reported that it was the single best-performing of all
funds specializing in mid-sized companies over the past 12 months. Yet the fund
remains relatively undiscovered by the conventional media. Its assets were below
$50 million as recently as March 31, and though they've since grown to $80
million (and climbing fast, as the word gets around), that's still quite small
and flexible by the standards of the industry's giants. Will renewed success
spoil Art Bonnel? Not so's you'd notice; he told me the only analyst he has
working with him is his wife--and one of his most concerned shareholders is his
mother.--LR
................................................................................
ART, WHILE YOUR FUND IS GENERALLY LISTED AMONG MID-CAP FUNDS--THAT IS, THOSE
SPECIALIZING IN COMPANIES WHOSE MARKET CAPITALIZATION IS BETWEEN $800 MILLION
AND $2 BILLION--IN FACT YOU RANGE WELL OUTSIDE THOSE LIMITS, IN BOTH DIRECTIONS.
WHAT DOES QUALIFY A COMPANY FOR YOUR CONSIDERATION?
Well, basically, the earnings have to be going up. We're always
searching for companies that have strong fundamentals. That means we'll buy some
very large companies like Sears and some smaller companies like Lo-Jack. The
majority tend to fall into the mid-cap range, but most anything is fair game for
us. I like to focus on mid-cap: I think there's more potential growth there over
time.
THE MARKET FOR YOUR KIND OF COMPANIES HAS BEEN SIZZLING. HOW MUCH LONGER DO YOU
EXPECT THIS TO LAST?
That's an interesting question, because it revolves around what the
stock market is going to do. Right now, I don't think the market is overvalued
or undervalued. And a lot of money is coming into mutual funds; I'm getting
close to a million dollars a day--quite a bit for a small fund.
Growth-fund managers see that the big companies aren't showing the good earnings
increases that they were last year, so they go to the secondary issues, which we
focus on, and say, "Hey, here are some companies with some good earnings."
WHY SHOULD NOT INVESTORS WHO MAKE THAT ANALYSIS GO DIRECTLY TO EVEN SMALLER
COMPANIES?
With smaller companies, if there is a problem the stock can open as
much as 50% down from the prior close. They're very risky, because of this lack
of liquidity. I like to see companies that trade 50,000 or 100,000 shares a day.
Then I know I can at least move in and out of the company, and I think an
individual investor should look at that also.
SO YOU EXPECT THE MID-SIZED COMPANIES TO CONTINUE TO BE THE HAPPY MEDIUM FOR THE
NEXT YEAR?
I really do. I don't see any great gains in earnings for the large
companies. And part of the reason is that the dollar has been getting stronger;
that doesn't help the large multinational companies.
AT CURRENT PRICES, WHICH STOCKS MOST ATTRACT YOU?
Well, that's a very provocative question, because I do like retailing
and we have a fairly large position in the fund, but I'm beginning to scratch my
head on this one. I think retailing has maybe three to six more months of
positive price action left. I've been in Sears since April of last year. The
stock's around $50; I think it can go maybe to $60, $65. But I really don't know
if I'd recommend it now. I might be moving out of a lot of my retailers near the
end of this year. But there is one in retailing that I think is very attractive
and has more than six months' appreciation left in it. And that's PIER 1
IMPORTS, a little company that has 691 stores in 47 states as well as Canada,
Mexico and England. Last July, they started moving to television advertising
from print advertising. They completed this in March, and they started
remodeling a lot of their stores. This combination is giving them double-digit
sales growth.
The company isn't recognized on Wall Street as a growth company
because they had a few problems in the past: their Sunbelt Nursery investment,
which they're getting rid of; trading losses, which were announced at the end of
last year; and overexpansion in the last decade. They now are past these
problems, and earnings are coming on stronger. I see earnings this year reaching
probably $1.00, $1.10 a share, which would be the highest ever, and in the next
year to two years, I think $1.25 to $1.50 is reasonable. You're looking at this
being maybe a $25 stock.
WHICH OTHER AREAS ATTRACT YOU?
One industry that really attracts me right now is gaming. I think two
gaming stocks in particular look attractive, and these are recent purchases:
CIRCUS CIRCUS and MGM GRAND. Circus has 13,665 hotel rooms, and in late June was
scheduled to open the Monte Carlo casino/resort in Las Vegas. What's interesting
about this hotel/casino is that they have nearly 100% occupancy, with paying
customers. Most other hotel/casinos "comp," and give their rooms away. This
company is coming back after consolidation since 1993, when I think gaming got
overextended. If it can break through the high of $49 that it established in
1993, I think this is a mid-$60s stock. And that goes along with the MGM Grand.
They're also going to be opening a resort in Las Vegas, called New York, New
York. And that's going to add 2,035 rooms to their existing 5,005 rooms. Do you
realize how long it would take you to go through these two hotels, if you slept
in a different room each night?
THAT'S A WONDERFUL AMBITION YOU HAVE, ART.
[laughs] It would take a long, long time! I live in Reno, but Las
Vegas is opening up so many new resort casinos that even I want to go down
there, take some time off and see what's happening. It's an adult Disneyland.
WHAT ARE YOUR CURRENT THOUGHTS ON TECHNOLOGY?
I'd like to reiterate a buy that I gave you the last time we spoke:
LO-JACK. It was $7.13 then, and went up to $17 after we recommended it. Then
there was a problem with margins in the New York/New Jersey area, and the stock
sold down to around $10 before coming back a bit. I think Lo-Jack is still an
extremely attractive buy. They have a patented system designed to assist
law-enforcement personnel in tracking and recovering stolen vehicles. They're
buying back 2.2 million of their shares, about 10% of outstanding shares. They
are looking to get new franchisees from Taiwan, South Africa, Venezuela--they're
even opening up a franchise in Russia. They're in 12 jurisdictions in the United
States. This company is so strong financially, it's just mind-boggling. I see
the stock probably in the low- to mid- $20s over the next couple of years.
<TABLE>
<CAPTION>
BONNEL'S BETS
- -------------
Recent 52-week Earnings
Stock (Symbol) Price High/Low 1995/1996*
================================================================================
<S> <C> <C> <C>
Pier 1 Imports (NYSE: PIR) ............ $15.38 $16.88/$8.88 $0.88+/$1.09+
Circus Circus Ent. (NYSE: CIR) ........ 42.25 44.63/24.75 1.72#/1.75#
MGM Grand (NYSE: MGG) ................. 45.88 48.75/22.75 0.96/1.69
Lo-Jack (OTC: LOJN) ................... 12.25 17.50/9.13 0.41+/0.47+
- --------------------------------------------------------------------------------
*Consensus estimates. +FY ends in Feb. 1996 and Feb. 1997. #FY ends in Jan. 1996
and Jan. 1997. Source: Bloomberg, Zacks.
</TABLE>
IN TERMS OF MARKET SECTORS, HOW DIVERSIFIED ARE YOU NOW?
We have around 115 different stocks in over 60 different industries.
I'm in practically every industry! I like broad diversification; I've been
managing money for well over two decades, and I realize that if you put all your
eggs in one basket, boy, if that basket falls, you're going to have an omelet. I
don't like omelets.
WHAT COULD HAPPEN THAT WOULD DIMINISH INVESTOR ENTHUSIASM FOR THE KINDS OF
STOCKS YOU BUY?
People getting a little too enthusiastic about the market. But I don't
really see that today.
ART, YOU TOLD ME CORRECTLY EARLY LAST YEAR THAT "1995 IS GOING TO BE A VERY GOOD
YEAR," AND YOU ALSO SAID YOU COULD SEE THE DOW "NEAR 8,000 BY THE YEAR 2000."
WOULD YOU CARE TO UPDATE THOSE NUMBERS NOW?
Yes. I think that the Dow will continue to run up, to close to 20,000
by the year 2007--because of the continued positive implications of the
demographics of people funding retirement accounts.
WHAT'S YOUR BEST ADVICE FOR MUTUAL-FUND INVESTORS LOOKING AHEAD TO 1997?
Hang on. This should be a good year, and 1997 should be even a better
year, because I think earnings are going to start to expand in '97. So don't
sell out this year. When the market sells off, that's the time to say, good, I'm
going to be buying more shares of the mutual fund. Take advantage and buy the
dips.
- ----------
For more information, including charges and expenses, call 1-800-4-BONNEL
(1-800-426-6635). Please read the prospectus carefully before investing.
Investment returns and principal value may vary, and you may have a gain or a
loss when you sell shares. Average annual total rate of return for 1 year period
ended 6/28/96, 38.45%. Average annual total rate of return for life of the Fund
(10/17/94 through 6/28/96), 39.39%. Past performance is no guarantee of future
results. US stands for "United Services." This reprint is not a solicitation for
any funds listed herein.
Reprinted from LOUIS RUKEYSER'S MUTUAL FUNDS o 1101 King St., Suite 400,
Alexandria, VA 22314 o July 1996
