MarketPulse

Francesca Levy, Kristen Girard • AP

DON’T SWEAT ITIt’s a phenomenon most investors are familiar with: You buy a stock that seems cheap, and then its price falls even more. It’s easy to think that you made a mistake and bought at the wrong time. But that’s the wrong way to look at investing, says Morningstar’s Christine Benz in a report. While it’s im-portant to pay attention to changes in your stock portfolio, there’s no way to avoid the occasional investing error, says Benz. Instead, she advises inves-tors to aim for “direction, not perfec-tion.” Some steps to take: Base asset allocation on research, rebalance your portfolio when necessary instead of try-ing to time the market and use dollar-cost averaging — a way of evening out your investments over time.

THE BEST OF THE BESTInvestors have heard a lot recent-ly about the importance of buying high-quality stocks. But what does “quality” mean? Goldman Sachs tries to explain just that in a recent report. Based on a host of measurements including reli-ably strong earnings and a company’s stock performance over time, Goldman picked 50 stocks for its “high-quality” bas-ket. It includes Yum brands, which owns the Taco Bell and Pizza Hut chains along with oth-ers, and National Oilwell Varco, an oilfield services and products company. Goldman suggests buying stocks in the basket to protect against a volatile market.

ON THE DEFENSIVEThe stock market has rallied in October. But many investors are still wary of the extreme volatility that has become com-mon since August. That has made defen-sive stocks more attractive. Defensives include utilities and companies that sell consumer staples — things that custom-ers keep buying even when the economy is uncertain. Demand for defensives is strong enough that Russell Investments has expanded its Defensive Index, which it launched in 2011, to include overseas companies. Its new Global Defensive in-dex was introduced last week. Russell research director Rolf Agather says de-fensives have been shown to do well over the long term, and are a less risky investment than companies that rise and fall with economic cycles.

MTD YTD 1-YR 3-YR 5-YR 10-YR

Russell Global Defensive index daily total returns

-5

0

5

10

15 percent

Data as of Oct. 19

SOURCE: Russell InvestmentsSOURCE: Goldman Sachs

20%

Goldman Sachs High Quality Basket sector breakdown: INFORMATION TECHNOLOGY

FINANCIALS

CONSUMER STAPLES

ENERGY

HEALTH CARE

CONSUMER DISCRETIONARY

INDUSTRIALS

MATERIALS

UTILITIES

TELECOM

14%

12%

12%

12%

10%

10%

4%

4%

2%

When the economy is slowing, it’s tougher to find companies whose earnings are consistently rising. Channing Smith, co-manager at Capital Advisors Growth Fund, says it’s best to focus on large, stable companies like Procter & Gamble that can weather an economic downturn. He’s also finding pockets of growth in technology companies and automakers.

How do you feel about the econo-my, and what does that mean for stocks?Our funda-mental view of the world is that the economy is slowing — not only in developed

economies like the U.S. and Europe, but also in the emerging markets like China, India and Brazil. ... (That) eventually is going to impact profits. (One) quantitative indicator that we look at is (the stock market’s) mov-ing average. What we have found is that where the market is today, it’s trading under these moving averag-es. That means negative momen-tum for the market. ... So, monthly future returns are much more likely to be negative than positive.

What do you make of the rally we’ve seen in October? Some people have said the market has hit bottom. Do you believe that? No, no, no. ... The biggest market mover that we’re going to see is coming Sunday (when European leaders meet to discuss the Greek debt problems). All eyes are on Eu-rope. The downdraft that we’ve had is because of Europe and because of the uncertainty there. And the re-cent move that we’ve had (upwards) over the last week-and-a-half is be-cause of optimism, confidence that we’re going to see a plan out of Eu-rope. ... We’ve been taken back a bit by the optimism that we’ve seen, be-cause it’s probably not warranted.

So how are you guiding the port-folio now? You’ve mentioned that you like companies like Procter & Gamble and Johnson & Johnson. You have to have cash, because un-fortunately, we don’t know which way this market is going to go. ... (Also), invest in quality. I mentioned those bluechips, and you’ve got to be very selective and pick your spots. We like mobile Internet. We love Apple; we consider Apple a blue-chip. We like Google, Qual-comm: anything that is exposed to (the market for smartphones). ... I’ve got an iPad, my kids have Apple products; we’re not giving that up. We’re not going to go back to a Nokia phone.

And there’s still room for more mobile growth?If you look at the penetration on smartphones, it’s probably 25 per-cent. So we have a huge runway, an enormous runway for adoption. And we’re in that mass adoption stage at this point. People are buying it. At Christmas time, they might not buy a sweater, but they’re going to buy an iPhone.

You also bought automakers for growth. Which companies do you like, and why? GM and Ford. It sounds crazy. But these are stocks that are trading at a (price-to-earnings) multiple of less than six. They’ve had new management that has come in the last few years and restructured. Their cost structures are very at-tractive now. They’ve negotiated with the (United Auto Workers), the liabilities are now off their books. ... They’re developing products that the market wants, like the Ford Fo-cus and the Ford Fiesta. So they’re becoming more profitable.

Be sensible, but find areas of growth

InsiderQ&A

Smith

David K. Randall, Kristen Girard • APSource: FactSet *based on last 12 months

Big names in small capsPanera Bread, Boston Beer, Domino’s Pizza. Big

names, but they’re small caps — companies whose mar-ket capitalization generally falls under $3 billion.

Investors often think of small caps as young, risky businesses. They can also be well-established compa-nies with high-profile brands.

Eric Marshall, manager of the $65 million Hodges Small Cap Fund, looks for smaller companies that inves-tors will recognize. One of his top holdings is movie the-ater chain Cinemark. It has 295 theaters in the U.S. and is expanding in Latin America, where there’s a growing

middle class. Marshall likes companies with strong brands because

they tend to be increasing their share of profitable mar-kets. And their success means a bigger company may try to acquire them. That would give investors a premium for their stock.

Marshall’s approach is one reason why he has beaten the S&P 500 by 13 percent a year over the three years his fund has been in existence. His fund is ranked sec-ond among all small-cap funds by Morningstar.

Here are some big-name small caps:

Panera’s revenue is up 19 percent this year de-

spite the economy. It has raised the number

of stores it plans to open. It’s now planning 105 this year and 110 in 2012. The stock is up 17

percent the last year.

(PNRA) Close: $105.85

Price-earnings ratio*

25Market Cap

$3.31 billion

$88.75 $133.43

52-week price range

The largest Ameri-can-owned brewery is

best known for its Sam Adams brand.

The company’s stock is up 20 percent the last 12 months. An-

heuser-Busch InBev is down 7 percent.

(SAM) Close: $84.44

Price-earnings ratio*

20Market Cap

$1.12 billion

$68.80 $100.93

52-week price range

The company has raised its revenue from Latin America 38 per-cent the last year. Last

month, it bought 10 the-aters in Argentina that have 95 screens. The

stock is up 16.5 percent the last 12 months.

(CNK) Close: $19.13

Price-earnings ratio*

16Market Cap

$2.31 billion

$16.70 $22.09

52-week price range

Analysts say an innova-tive ad campaign and a

recipe change have helped Domino’s sur-

pass its rivals. Its stock is up 92 percent the last

12 months. Yum Brands, owner of Pizza

Hut, is up 5 percent.

(DPZ) Close: $30.54

Price-earnings ratio*

19.5Market Cap

$1.92 billion

52-week price range

$13.97 $31.18

Air Products APD 72.26 5 98.01 82.74 -1.32 -1.6 s t -9.0 +.05 3 6.0 14 2.8

Amer Water Works AWK 23.44 0 31.08 30.51 0.69 2.3 s s 20.6 +32.27 1 18.9a 18 3.0

Amerigas Part LP APU 36.76 6 51.50 44.92 -1.00 -2.2 s s -8.0 +2.68 2 13.5 28 6.6

Aqua America Inc WTR 19.28 6 23.79 21.95 0.52 2.4 s t -2.4 +7.17 2 1.0 22 3.0

Arch Dan Mid ADM 23.69 4 38.02 28.59 0.84 3.0 s t -5.0—12.59 4 -3.5 9 2.2

AutoZone Inc AZO 227.70 0 337.23 327.50 -0.62 -0.2 s s 20.1 +41.55 1 23.9 17 ...

Bank of America BAC 5.13 2 15.31 6.46 0.27 4.4 s t -51.6—42.78 5 -26.2 ... 0.6

Bk of NY Mellon BK 17.10 3 32.50 20.70 1.73 9.1 s t -31.5—17.10 4 -6.5 10 2.5

Bon Ton Store BONT 3.91 1 17.49 4.98 0.26 5.5 t t -60.7—53.36 5 -31.6 19 4.0

CIGNA Corp CI 34.43 6 52.95 44.70 0.00 0.0 s t 21.9 +25.46 1 2.4 8 0.1

CVS Caremark Corp CVS 29.45 7 39.50 35.55 0.55 1.6 s t 2.2 +15.36 2 3.9 14 1.4

CocaCola KO 59.80 8 71.77 68.19 0.34 0.5 s t 3.7 +13.94 2 10.3 13 2.8

Comcast Corp A CMCSA 18.75 7 27.16 24.33 0.39 1.6 s t 11.2 +26.93 1 0.2 17 1.8

Community Bk Sys CBU 21.67 6 28.95 25.58 1.02 4.2 s s -7.9 +13.65 2 5.3 13 3.8

Community Hlth Sys CYH 14.61 2 42.50 18.66 -1.17 -5.9 s t -50.1—39.06 5 -11.8 7 ...

Entercom Comm ETM 4.61 2 13.63 6.07 -0.43 -6.6 s t -47.6—29.34 4 -19.7 5 ...

Fairchild Semicond FCS 9.95 4 21.02 13.36 0.27 2.1 s t -14.4 +28.96 1 -3.8 9 ...

Frontier Comm FTR 5.33 2 9.84 6.13 0.16 2.7 t t -37.0—21.64 4 -5.7 38 12.2

Genpact Ltd G 13.09 6 18.41 15.81 0.23 1.5 s t 4.0 —6.17 3 27.3a 21 1.1

Harte Hanks Inc HHS 7.00 3 13.74 8.71 0.05 0.6 s s -31.8—28.66 4 -17.7 12 3.7

Heinz HNZ 46.99 8 55.00 53.35 1.10 2.1 s t 7.9 +11.76 2 8.2 17 3.6

Hershey Company HSY 45.67 0 60.96 60.26 0.22 0.4 s s 27.8 +24.93 1 5.4 23 2.3

Kraft Foods KFT 29.80 9 36.30 35.20 -0.03 -0.1 s t 11.7 +14.27 2 2.8 20 3.3

Lowes Cos LOW 18.07 5 27.45 22.13 1.34 6.4 s t -11.8 +2.63 2 -4.6 15 2.5

M&T Bank MTB 66.40 4 91.05 74.94 -0.78 -1.0 s t -13.9 +6.55 2 -6.2 11 3.7

McDonalds Corp MCD 72.14 0 91.22 92.32 2.38 2.6 s s 20.3 +20.81 1 19.9 18 3.0

NBT Bncp NBTB 17.05 6 24.98 21.04 0.59 2.9 s t -12.9 —1.53 3 0.6 13 3.8

Nexstar Bdcstg Grp NXST 4.25 8 10.28 8.51 -0.09 -1.0 s t 42.1 +51.15 1 18.2 95 ...

PNC Financial PNC 42.70 6 65.19 54.06 3.25 6.4 s t -11.0 +3.08 2 -2.1 9 2.6

PPL Corp PPL 24.10 0 29.61 29.42 0.90 3.2 s s 11.8 +12.28 2 0.9 12 4.8

Penn Millers Hldg PMIC 13.16 0 20.25 20.17 0.05 0.2 s s 52.5 +40.56 1 ... ... ...

Penna REIT PEI 6.50 3 17.34 8.69 0.93 12.0 s t -40.2—31.89 4 -18.3 ... 6.9

PepsiCo PEP 58.50 3 71.89 62.28 0.04 0.1 s t -4.7 —1.40 3 2.4 16 3.3

Philip Morris Intl PM 55.85 9 72.74 70.00 2.60 3.9 s t 19.6 +26.29 1 22.4a 15 4.4

Procter & Gamble PG 57.56 9 67.72 66.26 1.90 3.0 s s 3.0 +7.57 2 3.6 17 3.2

Prudential Fncl PRU 42.45 5 67.52 53.23 2.31 4.5 s t -9.3 -+.07 3 -5.7 8 2.2

SLM Corp SLM 10.91 5 17.11 13.99 0.45 3.3 s t 11.1 +24.47 1 -20.8 15 2.9

SLM Corp flt pfB SLMpB 39.65 2 60.00 43.20 -0.75 -1.7 s t -1.4 ... 0.0 ... 10.7

Southn Union Co SUG 23.60 9 44.65 41.49 0.70 1.7 s t 72.4 +71.10 1 9.8 21 1.4

TJX Cos TJX 42.55 0 59.72 59.84 2.13 3.7 s s 34.8 +34.91 1 16.3 18 1.3

UGI Corp UGI 24.07 5 33.53 27.96 0.32 1.2 s t -11.5 —1.36 3 5.3 12 3.7

Verizon Comm VZ 31.60 8 38.95 37.42 0.09 0.2 s s 4.6 +21.10 1 6.4 15 5.3

WalMart Strs WMT 48.31 9 57.90 56.92 1.46 2.6 s s 5.5 +7.94 2 4.8 13 2.6

Weis Mkts WMK 36.52 5 42.20 39.25 0.25 0.6 s t -2.7 +2.36 2 1.9 15 3.0

52-WK RANGE FRIDAY $CHG%CHG %CHG %RTN RANK %RTNCOMPANY TICKER LOW HIGH CLOSE 1WK 1WK 1MO 1QTR YTD 1YR 1YR 5YRS* PE YLD

Notes on data: Total returns, shown for periods 1-year or greater, include dividend income and change in market price. Three-year and five-year returnsannualized. Ellipses indicate data not available. Price-earnings ratio unavailable for closed-end funds and companies with net losses over prior four quar-ters. Rank classifies a stock’s performance relative to all U.S.-listed shares, from top 20 percent (far-left box) to bottom 20 percent (far-right box).

LocalStocks

SOURCE: FactSet

Finding standouts among banksStockScreener

Banks stocks have plunged this year on fears about the European debt crisis and a slowing economy in the U.S.

Bank of America is down 52 percent, Citigroup is down 36 percent and Wells Fargo is down 15 percent. Goldman Sachs is down 40 percent for the year. The company also said this week that it lost $428 million in the third quarter as a result of lower trading revenue. It was only its second loss since it

went public in 1999.Regional bank stocks have had a far better year.

Since those banks are smaller and more focused on the U.S., they typically would have less to lose if Greece defaults on its loans.

This screen, powered by FactSet, shows the best-performing banks in the Standard & Poor’s 1500 index.

All of the banks have risen at least 5 percent this

year. Many of them also pay a dividend. Texas Capital Bancshares is the top performer.

It’s up 23 percent this year. The bank, which focuses on lending to consumers and businesses in Texas, didn’t suffer big losses from the housing crisis. Analysts also think the stock has room to grow. The average target price is $31.50, suggest-ing it can go up another 20 percent over the next 12 months.

Data through Oct. 20

CLOSING PRICE YTDDIVIDEND

YIELDP/E

RATIOCOMPANY TICKERAVERAGE

TARGET PRICETexas Capital Bancshares TCBI $26.33 $31.50 23.4% 0.0% 26.3Bank of the Ozarks OZRK 24.05 26.60 10.5 1.7 12.8Oritani Financial ORIT 13.45 14.40 9.9 3.0 48.0Pinnacle Financial Partners PNFP 14.45 14.70 6.4 0.0 N/AHome BancShares HOMB 23.15 26.70 5.1 1.4 48.3

2323.4%4% 10.5 9.9 6.4 5.1

American Funds BalA m ABALX 18.10 +.17 +4.3 +6.7/A +2.8/BAmerican Funds BondA m ABNDX 12.45 +.04 -.8 +2.9/C +3.6/EAmerican Funds CapIncBuA m CAIBX 49.19 +.23 +4.1 +2.5/A +1.8/CAmerican Funds CpWldGrIA m CWGIX 32.81 +.05 +6.5 -4.9/D +.6/BAmerican Funds EurPacGrA m AEPGX 36.65 -.20 +4.6 -9.8/D +.4/AAmerican Funds FnInvA m ANCFX 35.19 +.24 +6.0 +3.1/D +1.0/AAmerican Funds GrthAmA m AGTHX 29.11 +.08 +4.0 +1.8/E +.2/DAmerican Funds IncAmerA m AMECX 16.50 +.19 +4.2 +5.1/A +2.1/CAmerican Funds InvCoAmA m AIVSX 27.04 +.29 +7.0 +2.5/D -.4/CAmerican Funds NewPerspA m ANWPX 26.82 -.09 +4.2 -1.9/C +2.2/AAmerican Funds WAMutInvA m AWSHX 27.83 +.43 +6.8 +9.6/A +.2/BBlackRock GlobAlcA m MDLOX 18.72 +.02 +1.8 +.6/B +4.7/BBlackRock GlobAlcC m MCLOX 17.43 +.02 +1.8 -.1/C +3.9/BBlackRock GlobAlcI d MALOX 18.82 +.03 +1.9 +.9/B +5.0/BDodge & Cox Income DODIX 13.29 +.09 -.7 +3.3/C +6.5/BDodge & Cox IntlStk DODFX 31.34 -.08 +8.4 -9.8/D -.9/ADodge & Cox Stock DODGX 100.97 +.73 +7.1 +2.1/D -3.5/DFidelity Contra FCNTX 67.60 -.30 +2.9 +6.4/C +3.3/AFidelity DivrIntl d FDIVX 26.81 -.16 +3.5 -7.1/B -2.6/CFidelity Free2020 FFFDX 13.47 +.03 +1.8 +2.5/B +1.8/CFidelity GrowCo FDGRX 84.88 -.92 +2.4 +12.3/A +5.3/AFidelity LowPriStk d FLPSX 35.68 +.32 +6.1 +6.9/A +3.3/AFidelity Spartan 500IdxInv FUSEX 43.87 +.50 +6.3 +7.0/A +.1/BFrankTemp-Franklin Income A m FKINX 2.08 +.04 +2.6 +3.6/B +3.2/CFrankTemp-Franklin Income C m FCISX 2.10 +.04 +2.5 +3.5/B +2.7/DFrankTemp-Templeton GlBond A mTPINX 12.92 -.16 +.5 -.3/E +10.1/AFrankTemp-Templeton GlBondAdv TGBAX 12.89 -.15 +.6 /E +10.5/AHarbor IntlInstl d HAINX 54.92 -.13 +7.7 -6.5/B +1.5/AOakmark EqIncI OAKBX 27.31 +.15 +4.4 +3.9/B +4.7/APIMCO AllAssetI PAAIX 11.82 +.04 -.4 +.6/B +5.8/APIMCO ComRlRStI PCRIX 7.66 -.13 -7.0 +3.2/C +2.7/APIMCO TotRetA m PTTAX 10.74 +.05 -1.6 -.6/E +7.4/APIMCO TotRetAdm b PTRAX 10.74 +.05 -1.6 -.5/E +7.6/APIMCO TotRetIs PTTRX 10.74 +.05 -1.6 -.2/E +7.9/APIMCO TotRetrnD b PTTDX 10.74 +.05 -1.6 -.5/E +7.5/AT Rowe Price EqtyInc PRFDX 22.73 +.42 +7.6 +5.1/B -.4/BT Rowe Price GrowStk PRGFX 31.83 -.29 +2.6 +6.0/C +2.1/BT Rowe Price MidCpGr RPMGX 57.37 +.37 +4.4 +9.9/B +6.0/AT Rowe Price NewIncome PRCIX 9.60 +.02 -1.3 +2.6/D +6.5/BVanguard 500Adml VFIAX 114.17 +1.29 +6.3 +7.0/A +.2/BVanguard 500Inv VFINX 114.16 +1.29 +6.3 +6.9/A +.1/BVanguard GNMA VFIIX 11.08 -.01 -.9 +5.2/A +6.8/AVanguard GNMAAdml VFIJX 11.08 -.01 -.9 +5.3/A +6.9/AVanguard InflaPro VIPSX 14.01 +.11 -1.2 +7.1/A +7.2/BVanguard InstIdxI VINIX 113.41 +1.28 +6.3 +7.1/A +.2/BVanguard InstPlus VIIIX 113.41 +1.28 +6.3 +7.1/A +.2/BVanguard MuIntAdml VWIUX 13.72 +.06 -.8 +2.7/B +4.7/AVanguard STCor VFSTX 10.66 +.03 -.2 +1.1/B +4.5/BVanguard STGradeAd VFSUX 10.66 +.03 -.2 +1.2/B +4.6/BVanguard Tgtet2025 VTTVX 12.46 +.06 +3.9 +3.5/A +1.9/BVanguard TotBdAdml VBTLX 10.92 +.02 -1.2 +4.1/A +6.5/BVanguard TotBdInst VBTIX 10.92 +.02 -1.2 +4.1/A +6.5/BVanguard TotIntl d VGTSX 13.93 -.09 +4.9 -8.7/D -1.3/BVanguard TotStIAdm VTSAX 30.81 +.31 +6.2 +6.9/B +.7/BVanguard TotStIIns VITSX 30.81 +.31 +6.1 +6.8/B +.7/BVanguard TotStIdx VTSMX 30.80 +.31 +6.1 +6.7/B +.6/BVanguard Welltn VWELX 30.94 +.36 +4.6 +5.3/A +3.8/AVanguard WelltnAdm VWENX 53.44 +.63 +4.6 +5.4/A +3.9/AVanguard WndsrII VWNFX 25.38 +.46 +7.7 +6.4/B -1.0/BWells Fargo AstAlllcA f EAAFX 12.13 -.03 +.3 +1.6/ +2.7/

MutualFundsFRIDAY WK RETURN/RANK

GROUP, FUND TICKER NAV CHG 4WK 1YR 5YR

Dow industrials

+1.4%

+9.6%

Nasdaq

-1.1%

+6.2%

S&P 500

+1.1%

+9.0%

Russell 2000

-0.0%

+9.2%

LARGE-CAP

SMALL-CAP

p p

p

qpq

p pq

qp

q

MO

YTD

MO

YTD

MO

YTD

MO

YTD

WEEKLY

WEEKLY

WEEKLY

WEEKLY

+2.0%

-0.6%

-1.5%

-9.1%

Yields slip in mixed weekThe price of a 10-year Treasury rose for the week, sending its yield down amid choppy stock trading. On Friday, yields rose along with stock prices as traders seemed somewhat more optimistic about the ability of European leaders to resolve the Greek debt crisis. The average rate on the 30-year fixed mort-gage edged down to 4.11 percent from 4.12 percent a week earlier.

InterestRatesMIN

Money market mutual funds YIELD INVEST PHONE

3.253.253.25

.13

.13

.13

PRIMERATE

FEDFUNDS

Taxable—national avg 0.01Selected Daily Govt Fund/Cl D 0.13 $ 10,000 min (800) 243-1575

Tax-exempt—national avg 0.01Alpine Municipal MMF/Investor 0.10 $ 2,500 min (888) 785-5578

Broad market Lehman 2.48 -0.02 s t 0.10 3.29 2.15Triple-A corporate Moody’s 3.98 -0.08 s t -0.71 5.31 3.79Corp. Inv. Grade Lehman 3.84 -0.11 s s 0.28 4.22 3.36

FRIDAY6 MO AGO1 YR AGO

FRIDAY CHANGE 52-WKU.S. BOND INDEXES YIELD 1WK 1MO 3MO 1YR HIGH LOW

Municipal Bond Buyer 4.98 -0.01 s t 0.10 5.95 4.87U.S. high yield Barclays 8.89 -0.41 t s 1.42 10.15 6.61Treasury Barclays 1.20 -0.03 s t -0.19 2.46 0.96

FRIDAY CHANGE 52-WKTREASURYS YIELD 1WK 1MO 3MO 1YR HIGH LOW

3-month T-Bill 0.02 0.00 s t -0.10 0.161-year T-Bill 0.15 -0.01 s t -0.06 0.34 0.076-month T-Bill 0.04 0.00 s t -0.13 0.20 0.012-year T-Note 0.27 0.00 s t -0.07 0.83 0.165-year T-Note 1.07 -0.05 s t -0.05 2.39 0.78

10-year T-Note 2.21 -0.04 s t -0.32 3.72 1.7230-year T-Bond 3.26 0.03 s t -0.68 4.77 2.72Money fund data provided by iMoneyNet Inc.

Rank: Fund’s letter grade compared with others in the same performance group; an A indicates fund performed in the top 20 percent; an E, in the bottom 20 percent.