NEW YORK – With the second quarter of 2001 almost at a close, big capitalization stocks have moved off their lows from earlier in the year but are still in a funk. The Dow Jones industrials are up just 2% so far this year, while the broader-based Standard & Poor’s 500 is down 4%.
Allan Rudnick, president and chief investment officer of Kayne Anderson Rudnick Investment Management, a Los Angeles-based money manager with $7 billion in assets, cautions against abandoning large cap stocks. “Our message to clients is that you shouldn’t move from one asset class to another to play a cycle,” he says. In fact, Rudnick sees opportunities in large caps, particularly given the S&P’s 11% correction over the past year.
One stock Rudnick recommends is Gap (nyse: GPS – news – people ), which is off 17% from its 52-week high, due to investors’ concerns about weakness in same-store sales and declining earnings. In mid-May, Gap announced that quarterly earnings were off 51% versus the same quarter a year earlier.
Gap, however, satisfies several of Rudnick’s criteria, notably a healthy latest 12-month return on equity of 25% and annualized earnings growth of 27% over the last five fiscal years.