James -
Interesting question. I agree with you on the difficulty in finding stocks in this market. I also agree on ANF - Hollister especially worries me. I'm starting to think that there are problems there that management is unwilling or unable to face up to.
Re your question, here are a couple of stocks that I think will be long term (3-5 years) winners but don't expect to double in the next year:
DGX (Quest Diagnostics): The leading provider of lab services and diagnostic testing, and the leader in the industry. They are an exceptionally well run company and they have a nice razor and blade type of business. I've dealt with them in the past (both at work and as a patient) and was very favorably impressed. Strong cash flow, decent balance sheet, options are an issue. They've been hurt a little by the bad economy over the last couple of years, and if employment improves their results should benefit.
FDS (Factset Research): Provides integrated financial information services to investment banks, brokerages, etc. Based on the numbers, I think this is one of the most exciting companies out there but unfortunately, unlike Quest Diagnostics, I have had no direct dealings with them. I would be interested in hearing from anyone who has. Gross margin runs in the mid 60's, ROIC is in the mid 20's, the balance sheet is pristine, options are a problem. They are not quite as good as vintage Oracle or Microsoft - growth rates in the 20's or 30's, depending on what you're looking at - but the profitability, cash flow and balance sheet are in the same league.
The closest I can come to a "swing for the fences" is LNCR (Lincare Holdings) a provider of home respiratory therapy. This company has been putting up Coca Cola-like numbers, but they are going to be hit hard by the new Medicare pricing rules, and the stock is down over 25% as a result. I'm not so concerned about that, LNCR provides a service that saves money overall and I'm reasonably confident that things will work themselves out by 2005 when the rules take effect. My problem with LNCR is that, quite frankly, I don't completely trust management. Don't have the time to go into great detail, but a condensed version is; they have (IMO) practiced selective disclosure in the past, and they are structured as a holding company with hundreds of independent units whose results are rolled up into theirs. They are quite probably a completely legitimate operation, but I don't have the confidence to buy a lot. If they are legit, I believe they are a tremendous bargain right now.
As for what stock I'd put 25% of my portfolio in, for me that would require not only safety, but a "back up the truck" depressed price. I don't see the latter anywhere, but if I had to do it I'd consider MCD, JNJ, or BRK, all of which I consider to be very safe and reasonably priced. |
