My Pleasure.......
*****************************************
Check out Jim's Top Stocks
Ten for 1998
1. Fannie Mae
2. Nike
3. Intel
4. Compaq
5. Grupo Iusacell
6. CyberMedia
7. Fed Ex
8. Citicorp
9. AIG
10. Bonds
Ten to Watch for `98
As `97 ends in bearish style, it's not easy to be bullish on stocks. Some investments are worth a forward look anyway.
By Jim Jubak
Let me be completely honest. About the last thing I want to do right now is look ahead at 1998. In the last few months, I've watched a year's worth of gains in Vitesse (VTSS), PRI Automation (PRIA) and Adobe (ADBE) vanish into thin air. Credible long-term success stories at LSI Logic (LSI), Rowan Co . (RDC) and Texas Instruments (TXN) are producing nothing but red ink. As I've said in my last two columns, I think the first half of 1998 is likely to be just as bad or worse. Emotionally, I'd like to turn out the lights, pull the covers over my head, and curl into a fetal ball. Wake me when it's over.
But every year during the good times, I've used the slow days at the end of the year to put together a list of stocks to watch in the year to come. I've found that the exercise forces me to think about trends in the market and economy. I inevitably wind up comparing the prospects of stocks that I already own with those that look attractive. I spend a lot of time thinking about what price would make me buy or sell a stock.
I don't think it's wise to abandon the tradition just because we face a tough market in 1998. In fact, this kind of year-to-come analysis is especially valuable at a time like this. Next year's market will be very different from that of the last few years. The profits to be made, if any, will be made from a different group of stocks. This quiet period in the markets is the time to pull thoughts together, prepare a strategy or two, and identify some targets of opportunity. My guess is that the market will change direction again and again, with almost sickening speed, in 1998. Just remember, when you go hunting, the time to load your gun is before the lion charges.
So here are 10 investments to watch in 1998. In only a few cases are these stocks fit to buy now. (I've clearly noted those.) Most, however, match the classic definition of a watch-list candidate. I'll be watching over the next months to see how events unfold and how prices move before I pull the trigger.
1. Fannie Mae (FNM). One of the few stocks on this list that I'd buy now without hesitation. I first wrote about Fannie Mae in my July 29 column, "The Blue Chip Safety Premium," noting that the stock provided an astonishing combination of double-digit earnings growth and a below-market price-to-earnings ratio. Since I added it to the Jubak's Picks portfolio, supercharged by falling interest rates, the stock is up about 28%.
I think Fannie Mae will get another boost from declining rates in the U.S. in 1998, but I actually like this stock right now because of an audacious bit of product innovation. Noting that the plummeting U.S. budget deficit is cutting the supply of new Treasury bills, notes, and bonds even as the demand for safe, high-yielding, dollar-denominated investments is soaring, Fannie Mae has put together a new debt instrument of its own designed to meet the demand. Fannie Mae's new product has a way to go before it can match the liquidity that investors love in the Treasury market, but the move, even if only partially successful, gives the mortgage bank a shot at cutting its cost of money. And that would pad Fannie Mae's already-impressive profit margin.
2. Nike (NKE). Nike keeps shooting itself in the foot -- a few more quarters of this and investors should be able to pick up one of the great global consumer franchises for a song. In the quarter ending Nov. 30, Nike reported earnings of 48 cents a share, missing analyst estimates by a whopping 7 cents. The company said that earnings for fiscal 1998 (which ends in May) are likely to be just $2.00 to $2.15, a far cry from analysts' projections of $2.60. No wonder the stock now trades at just about half its February high of $76. I'm not looking for a quick turnaround -- future orders are falling in Asia and in the U.S., forcing the company to dump inventory. My guess is that the company may be able to turn sales around by the spring of 1999. I'll start looking for movement in the stock about nine months before that.
3. Intel (INTC) also faces a rough 1998. I think there's a good chance that the company will disappoint Wall Street with its December quarter numbers -- certainly the stock's price is behaving as if it will. The consensus among analysts is that earnings will grow by just 10% in 1998 over 1997's likely $3.82 a share. A few are projecting both a lower earnings number for 1997 and then essentially flat growth in 1998. I'm looking for Intel's price to move lower for the first half of 1998, before Wall Street starts to anticipate renewed earnings growth from new products and more efficient manufacturing. I think patient investors might get a chance to buy Intel below $50.
4. Compaq (CPQ). Busy worrying (rightly) about the collapse of the Asian market for personal computers, the market has overlooked Compaq's amazing momentum. In the last six months alone, the company has grabbed more market share, almost erased Dell's (DELL) cost advantage in marketing, grabbed the lead in the sub-$1,000 PC market, and snared the pole position in the race to sell more profitable NT-based workstations in the corporate market. We're not at a bottom yet in this stock, but given the earnings momentum in the story, it looks cheap. A buy sometime soon.
5. Grupo Iusacell (CEL). When I first wrote about this Mexican wireless phone company in August ("It's A Wireless World") I felt that it came with too much risk for the potential return. Since then, though, Mexico has become one of the world's few growth stories, Bell Atlantic (BEL) has gained virtually complete management control, and the company has announced plans to spend $200 million on a digital upgrade to its system. The stock has been moving up an eighth here and an eighth there. Like Fannie Mae, this is a rare stock that I'd buy now. In fact, I'm adding it to the Jubak's Picks portfolio with this column. Right now, the stock offers a very attractive combination of potential growth with no exposure to Asia's problems.
6. Cybermedia (CYBR). I was afraid that this one had run away on me when the stock climbed to $33 in October, but the current market's loathing for anything smelling of technology cut the price in half. Ironically, this isn't a technology story. Cybermedia sells software that cuts the costs of owning personal computers by providing automated trouble shooting and automatic software updates. Think of them as a Help Desk on a disk. Major computer and printer manufacturers such as Sony (SNE) and Hewlett-Packard (HWP) are now selling Cybermedia's products bundled with their machines. The company has just launched new software designed for networked personal computers running Windows or NT in a corporate setting. That gives Cybermedia entry to a corporate marketplace almost obsessed with lowering the cost of PC ownership. I think it's early to buy this stock -- it could get marked down further in the technology sell-off -- but this is one company that looks to be in the right spot at the right time.
7. Federal Express (FDX). Yeah, yeah, I know, business in Asia is lousy and the company disappointed Wall Street when it announced earnings in early December. But I saw the kind of bad news that I like in the company's financials. Earnings took a hit as Federal Express spent money on a new hub at the Fort Worth, Texas, airport and on upgrading its small package-sorting operation in Memphis, Tenn. Both projects should go from being drains on earnings to significant pluses as new automated equipment cuts costs by raising productivity. Again, as in the case of Nike -- although probably not as cheaply -- investors should be able to add a global franchise to their portfolio at a bargain price later in 1998. I'm hoping that bad news from Asia in the company's next quarter will knock a few more dollars off a share price that's already down almost $30 from the 52-week high.
8. Citicorp (CCI). I laid out my argument for buying this global bank in my last column ("A Long-Term Cure for Asian Flu"). The financial turmoil in Asia, some unexpected currency trading losses at a competitor, or bad news on the credit card front should drive the price of this stock lower in early 1998. I'm waiting.
9. American International Group (AIG). This is a hard one to time -- the stock never seems to go down. (AIG is off just $7 a share from its 52-week high of $112 despite its massive exposure to Asia.) But I expect to see some bad news out of the global non-life insurance industry in 1998. There's a consolidation coming that will shake out the weak players and that should take a bite out of the price of even an AIG. You'll find the reasons that I like the stock so much in my last column ("A Long-Term Cure for Asian Flu"). I'm hoping to get this below $100.
10. Bonds. Yep. Good old U.S. Treasuries. I think rates are headed down some more this year. Growth is slowing around the world, even in the U.S. Demand for safe, dollar-denominated Treasuries is actually likely to strengthen in the next stage of the Asian financial crisis, and new supply is very limited. Purchased when priced to produce a yield within a tick or two of 6%, I think intermediate bonds could provide a total return from interest payments and appreciation (if rates fall) that could beat the return from stocks over the next six months. And I think they provide a great hedge against all the things that could go wrong in the global economy in 1998.
******************************************************
Regards,
Satish |
