Amidst the wartime market’s nervous swings, Philip Orlando, chief investment strategist with Value Line Asset Management ($4 billion in assets), stays steady with a bullish outlook.

“There is a lot of pent-up demand among both businesses and consumers that will release itself once the geopolitical clouds lift,” Orlando says. If the situation in Iraq calms down, he suggests that such factors could push gross domestic product growth into the 3% to 4% (annual) range for the second half of 2003.

Adding to Orlando’s confidence: He sees the right ingredients for economic recovery in the fiscal and monetary policies being pursued in Washington, namely low interest rates, tax cuts, and–despite the recent hubbub–deficit spending. “These things shouldn’t happen ad infinitum,” he says, “but they are the appropriate near-term policy choices to get an economy out of recession and on to a proper growth path.”

Full story at Forbes.com

Since March 11th, the Nasdaq Composite index has rallied 12%. Whether the move signals a new bull market or just a war bounce is anyone’s guess. But the fact remains that the index is 72% cheaper than it was at the turn of the century. Although it could drop further, now seems as good a time as any for patient and careful investors to shop this market.

Here’s one idea: Cuno. The Meriden, Conn.-based company makes filtration technology for gases and liquids. Nearly half of the company’s sales come from products used for purifying drinking water for residential and commercial customers.

Over the past three years, Cuno’s revenue has increased by a modest 5% per year. But the company’s results should benefit from the growing demand for clean water in both developed and emerging economies. In the latter area, the statistics are particularly sobering. By the World Bank’s tally, 1.1 billion people lack access to safe water. As a result, 3.5 million children die each year from waterborne diseases.

Cuno seems well poised to tap into efforts to fix these and other water-related problems. Business outside the U.S accounts for 42% of the company’s revenue. In all, Cuno had $258 million in sales for its most recently reported fiscal year, ended October 2002. Analysts reporting to Thomson First Call expect that number to climb to $281 million this October and $295 million in 2004.

Full story at Forbes.com

WASHINGTON – It may not be at the top of Congress’ to-do list right now, but the Higher Education Act of 1965 is up for reauthorization in 2003. For-profit purveyors of postsecondary education–and their shareholders–will be watching closely.

These outfits draw the largest portion of their revenue from government financial aid programs. Career Education (nasdaq: CECO – news – people ), for example, which runs schools such as The Texas Culinary Academy and the International Academy of Design & Technology, pulls in about two-thirds of its total revenue from government sources.

Some background: The main federal source of postsecondary funding is Title IV of the Higher Education Act. Title IV encompasses such programs as Federal Family Education loans, Pell Grants and Perkins Loans. For the 2004 budget, President George W. Bush recently asked for $62 billion in total grants, loans and work-study programs at the postsecondary level. Pell Grants, $11.4 billion for this fiscal year, would rise to $12.4 billion.

But with that money comes a raft of standards and requirements set forth by the U.S. Department of Education and others. These include ensuring that default rates on student loans don’t exceed 25% for more than three years straight; keeping each institution’s federal aid revenue under 90%; hitting certain targets, vis-à-vis completion and placement rates; and maintaining acceptable levels of “administrative capability,” such as providing sufficient financial aid counseling and other services.

So which way will the rulemaking pendulum swing in the reauthorization process? Some members of Congress have made noises suggesting a tightening. A fact sheet from the House Education & the Workforce Committee, for example, has this to say: “While the cost of a quality education continues to rise, questions remain about the quality and accountability of America’s higher education system.”

Analysts say such bluster shouldn’t cause investors in for-profit postsecondary education firms much anxiety. On the accountability issue, for instance, analyst Richard Close, who follows the sector for Atlanta-based brokerage SunTrust Robinson Humphrey, says for-profit providers have a fairly solid track record. “They have an incentive to provide a quality education that enables a student to get employment after [graduation],” he says, “and they do a pretty good job on that front, as opposed to their competitors in public schools and community colleges.”

Full story at Forbes.com

With the broader market bouncing around at 1997 levels, Tony Rosenthal, who helps oversee a $2 billion portfolio at New York’s TimesSquare Capital Management, sees opportunities in mid-cap stocks, or those with market values between $1.5 billion and $10 billion.

“Mid-caps combine the best of both worlds,” says Rosenthal. Unlike large stocks, he explains, mid-caps can be relatively “undiscovered,” particularly as the big brokerage firms pare down their equity research operations. On the other hand, mid-caps are usually more liquid and less volatile than smaller capitalization issues, which often get crushed when a big holder bails out.

A growth investor, Rosenthal looks for companies he thinks will increase sales, earnings and free cash flow by at least 15% over the coming three years. He pays particular attention to free cash flow, which Forbes defines as net income plus depreciation minus capital expenditures. The metric gives a sense of a company’s ability to buy back stock, pay down debt, make acquisitions and plow cash back into the business.

Example: Moody’s, the New York publisher of opinions, ratings and research on issuers of bonds and other credit obligations. The company certainly has a good track record generating free cash flow; its free cash flow margin, or free cash as a percentage of revenue, stands at a very robust 29% for the past 12 months.

Moody’s shares are down 15% from a 52-week high of $52 set last August. Driving the decline are worries that an eventual rise in interest rates will slow down the issuance of new bonds, meaning less business for rating agencies like Moody’s, Fitch and Standard & Poor’s. Another fear: Financial reforms will weaken the strong market position that Moody’s has enjoyed.

Rosenthal says such concerns are real but overdone. Although he expects Moody’s business to soften, he predicts that the firm, of which Warren Buffett’s Berkshire Hathaway owns 15.5%, will continue to deliver healthy free cash flow in 2003.

Full story at Forbes.com