Dow Jones News Services
(Copyright © 2000 Dow Jones & Company, Inc.)
By Georgette Jasen
Staff Reporter of The Wall Street Journal
Investors finding it tough to make money in the stock market these days may take comfort in the results of this column's latest stock-picking contest.
Neither a team of investment professionals, nor four Wall Street Journal readers nor four dart throwers managed to come up with a combination of stocks that was profitable. Four pros posted an average loss of 6.6% for the period from Feb. 9 through July 31, compared with an average decline of 17.3% for four Journal readers and a whopping 40.2% average drop for stocks chosen by flinging darts at the stock tables. The Dow Jones Industrial Average slid 1.7% over the same period. It was the third consecutive competition in which all three portfolios, and the Dow industrials, posted declines.
Still, there were a few winners among the choices in the latest contest. The top performer among the pros' selections was Scios Inc., a Mountain View, Calif., biotech company that jumped 23.4% in just under six months. Another pro pick, Nortel Networks Inc., the Canadian telecommunications-equipment maker, rose 21.6%. One of the reader picks, Juniper Networks Inc., a Mountain View, Calif., maker of Internet communications equipment, soared 54% during the contest.
As is the custom of this competition, the professionals who placed first and second have been invited back for another round against the darts and Journal readers. Scios was the selection of Warren Isabelle, president of Ironwood Capital Management in Boston and manager of its ICM/Isabelle Small-Cap Value Fund. Nortel was the selection of Peter van Hengel, director of research for Noble Financial Group, a regional brokerage firm in Boca Raton, Fla.
The newcomers on the pro team for the coming six months will be Joseph V. Battipaglia, chief investment strategist for Gruntal & Co., a brokerage firm in New York, and John P. Keegan, senior portfolio manager and director of investment products and services for Independence One Capital Management, a unit of Michigan National Bank in Farmington Hills, Mich.
Mr. Isabelle's choice for the next contest is Signal Technology Corp., a Danvers, Mass., maker of electronic parts and systems. The company was formed in 1981 as a defense contractor, he notes, but its technology can also be used in broadband telecommunications. "There's huge potential," he says.
Signal's stock price took a beating as a result of questions about accounting practices in 1998, Mr. Isabelle says, but the problems "turned out to be sloppiness." New management "brought discipline and forward-looking thinking," and sales are beginning to move up, he says. Company officials are about to begin a road show for a new share offering, he adds, which should create interest in the stock. Signal traded late yesterday on the Nasdaq Stock Market at $16.38.
Mr. van Hengel is going with Corning Inc., the maker of optical fiber and other high-tech glass products in Corning, N.Y. "Fiber optics is so hot that they can't make enough," he says. "Earnings are . . . unbelievable." The company's flat visual-display screens also are "very well-positioned" in the market, he adds, noting that flat screens will be the technology of choice for computers and high-definition televisions in the next five years.
The stock, at $276 late yesterday on the New York Stock Exchange, is expensive, he notes, but it's still down since a planned acquisition of Nortel's fiber-optics business for more than $100 billion in Corning stock was called off. Corning doesn't need the deal, he says. "It's so strong."
Mylan Laboratories Inc., a maker of generic pharmaceuticals in Pittsburgh, is Mr. Battipaglia's pick. Its stock price has lagged in part because of pending Federal Trade Commission litigation concerning product pricing, he says, but he expects a resolution soon "that won't be onerous for the company." Last month, Mylan announced a tentative agreement under which it will pay a total of $135 million to settle the FTC action and certain other lawsuits without any admission of wrongdoing. "It's an old-fashioned story. Good news lifts stock price," he says.
"The emphasis on cost in the pharmaceutical industry plays right into the hands of a company like this," Mr. Battipaglia says, and Congress is considering proposals that would give consumers better access to insurance coverage for pharmaceuticals. Mylan currently is developing marketing plans for a number of new products, he adds. The stock traded late yesterday on the Big Board at $22.75.
Mr. Keegan's pick is EMC Corp., the Hopkinton, Mass., maker of data storage hardware and software. "It has a dominant position in an expanding industry, is continuing its investment in research and development, and has a strong management team and strategic partners," he says.
Mr. Keegan says his firm stays away from dot-coms and other Internet companies that don't have earnings, preferring Internet-infrastructure plays. Earnings are growing strongly, he says, and the industry is looking to double in size in the next three-to-five years. Although at $90 late yesterday on the Big Board, EMC is trading close to its 52-week high, and Mr. Keegan expects it to go still higher over the course of this competition. "The industry is growing so rapidly," he says. "There will be higher multiples and higher share prices driven by higher earnings."
For the contest ending Jan. 31, 2001, the pros will be competing against a dartboard portfolio consisting of Becton Dickinson & Co., International Speedway Corp., MIPS Technologies Inc. and Taco Cabana Inc.
The readers' portfolio, selected at random from e-mail submissions to WSJ.com, consists of Abercrombie & Fitch Co., the pick of Don C. Whitaker Jr. of Aliso Viejo, Calif.; Apple Computer Inc., chosen by Abdulredha Ruyan of Brighton, Mass.; Wind River Systems Inc., selected by Linda K. Noggle of Chicago, and a short sale of Ballard Power Systems Inc., the recommendation of Bob G. Murphy of Houston. In a short sale, an investor sells borrowed stock, hoping that the price will fall before the loan has to be repaid.
Results of the contest just ended leave the pros comfortably ahead of the darts and the Dow industrials when results of 122 contests since 1990 are compared. The score is 75-47 for the pros against the darts and 64-58 in favor of the pros compared with the industrial average. The pros, meanwhile, have garnered an average six-month investment gain of 11.8%, compared with 5.1% for the darts and 6.6% for the DJIA.
But the pros have only a narrow lead over Journal readers in the 10 contests since readers were invited to participate in this competition last year. For those 10 contests, the pros have racked up an average six-month gain of 20.3% compared with 19.2% for the readers.
--- |
