Barron's: Fewer bargain stocks
By Deborah Adamson, CBS.MarketWatch.com
Last Update: 2:57 PM ET May 11, 2002
NEW YORK (CBS.MW) -- The broad market has fallen quite a bit from two years ago, but fund managers say there are fewer stock bargains to be had now than back then, according to Barron's.
While many widely held stocks, especially in technology, have had steep declines, hundreds of stocks that were ignored in early 2000 have since rebounded strongly, Barron's cover story said Saturday. Overvalued companies have become less so while undervalued stocks have rebounded, many doubling in price.
The result is a more rational and efficient market, one that values a firm for profit performance than a vague promise down the road, the article said.
In addition, while the S&P 500 and the Nasdaq have skidded, the list of stocks hitting new highs has comfortable exceeded new lows on the New York Stock Exchange. It's true even for the Nasdaq.
Barron's noted that S&P 500 stocks with a price-to-earnings ratio below 10 stand at just 15 now, compared with 103 two years ago.
The current list includes Washington Mutual (WM: news, chart, profile), Pulte Homes (PHM: news, chart, profile), Centex (CTX: news, chart, profile), KB Home (KBH: news, chart, profile) and Countrywide Credit (CCR: news, chart, profile). Others named carry business risks such as WorldCom (WCOM: news, chart, profile), Dynegy (DYN: news, chart, profile), Mirant (MIR: news, chart, profile), Conseco (CNC: news, chart, profile) and Tyco (TYC: news, chart, profile).
Bill Nygren, value fund manager of the Oakmark and Oakmark Select funds, has his eye on "above-average businesses trading for below-average prices" such as Merck (MRK: news, chart, profile), Schering-Plough (SGP: news, chart, profile), Fannie Mae (FNM: news, chart, profile), McDonald's (MCD: news, chart, profile) and The Gap (GPS: news, chart, profile). Also, Washington Mutual remains a favorite.
Ross Margolies, head of the Salomon Brothers Capital fund, likes Sun Microsystems (SUNW: news, chart, profile) as a recovery play in technology. At $6.26 a share on Friday, the company is down 90 percent from its 2000 peak of $64 and off 50 percent this year.
While Sun has its challenges in the server market and has seen the exit of several key executives, Margolies argues that Sun is likely to post profits in 2003, has more than $1 a share in cash and investments, and boasts a market value of $20 billion -- less than two times the company's annual sales. In the past, Barron's noted, it has paid off to buy tech hardware stocks selling at one to two times sales.
Toni Sacconaghi of Sanford Bernstein likes Hewlett-Packard (HPQ: news, chart, profile), which just merged with Compaq Computer. The stock is trading at 16 times projected profits for its coming fiscal year. H-P's market value of $58 billion is below its annual sales of $75 billion. Sacconaghi believes the company is worth $21 to $29 a share, has downside support of $15 from the printer business and is capable of earnings $1.20 a share in the coming fiscal year. |
