Taking stock: Indiana stocks worth watching in 2008.

• Author: Held, Shari
• Position: INVESTMENTS - Company overview

THE ECONOMIC OUTLOOK may not be as healthy as it has been in years past, and some stocks are very volatile. Predictions for the state of the economy may not be rosy but there are plenty of bargains to be had for cautious investors.

Dynamic growth. As in 2007, Fort Wayne-based mini-mill Steel Dynamics (STLD) is on several experts' lists of stocks to consider for 2008. "It performed exceptionally well, as we thought it would do, says Michael Shinnick, portfolio manager, South Bend-based 1st Source Investment Advisors Inc. 1st Source has satellite offices in Elkhart, Warsaw, Fort Wayne, Niles and St. Joseph, Mich., and manages $3 billion in assets, $2.3 billion of which is discretionary.

"It's up over 50 percent this year from last year," he says. "Because they can operate at low costs--they have a non-union workforce with some pretty good incentives based on production--our judgment is they are able to make money in all market conditions. They make more when the market for steel is very strong, but even when it softens up or tightens, they have a cost advantage versus their competition. Lastly, there have been a number of acquisitions within the steel sector, and we think that Steel Dynamics might be a possible target for one of the larger steel companies during the upcoming year."

Steel Dynamics has done its own share of acquisitions in 2007--Pennsylvania-based The Techs steel operations and Fort Wayne-based OmniSource Corp., a founding shareholder of the company and a supplier of scrap metal. Thomas Blair, senior portfolio manager and vice president at the Indianapolis office of Fifth Third Investment Advisors, calls the acquisition a "fantastic downstream integration." "What that allows them to do is to cut out a lot of costs that they would have otherwise paid OmniSource."

Fifth Third Investment Advisors, a division of Fifth Third Bancorp headquartered in Cincinnati, has 110 portfolio managers in 22 offices in seven Midwest states and North Carolina, Georgia and Florida. The company manages $40 billion in assets.

Blair likes the fact that Steel Dynamics has been actively repurchasing its stock. "With all the cash they are generating in the marketplace, they can keep their debt low and retire their shares and push the stock price up," he says. "They are doing all the right things, and they are being conservative along the way without jeopardizing what they have built up."

Real estate investment trusts (REITs). Three Indianapolis-based...