LONG SHOTS, SHORT SHOTS. 01/03/94 (STOCK FORECASTS)
By Steven Ramos
Forbes
Page 42
Copyright Forbes Inc. 1994
As it does every year, FORBES invites a group of market pundits to pick
their favorite stock for the year ahead.
EACH YEAR we run a simple contest: We ask a group of analysts to
pick one position they'd hold--either long or short--for a year.
How did last year's pundits do? Not bad for those who made bullish bets.
Their picks beat the Wiltshire 5000 index by eight percentage points. The
bears, as might be expected in a strong market, were bloodied, but not
badly. Their short positions did lose money, but the stocks went up less
than the market average.
The best recommendation was Elizabeth Tran's pick of Hutchinson
Whampoa, the Hong Kong-based container terminal and real estate
conglomerate. That stock better than doubled. The worst tip was Robert
Holme's to short McDonnell Douglas, which also better than doubted.
And now, with appropriate flourishes of trumpet, we bring back the most
successful of last year's sages to try their luck again. In place of those who
had egg on their face last year, we have brought in several new aspirants.
Back to defend her first-place title is Elizabeth Tran of Prudential Asia
Fund Management in Hong Kong. This time Tran selects KYC Machine
Industry, a Japanese manufacturer of construction equipment that was
recently trading on the Osaka exchange at 343 yen, or 3-1/8. The
company has been losing money, but that makes its stock cheap--at 55%
of book value, it's off 57% from a year ago. Tran is betting on a
turnaround from increased public works spending.
Carlene Murphy, comanager of the Strong Common Stock Fund, did well
last year with Littlefuse, which makes those thumbnail-size fuses under a
car's dashboard. Now Murphy has her heart set on Dovatron
International, a $135 million (estimated 1993 sales) company that was
spun off from Dover Corp. last year. Dovatron provides contract
manufacturing to the electronics industry.
Returning after five consecutive years of market-beating stock picks is
Presidio Management's Van Brady . His 1993 choice, Cheyenne
Software, rose smartly as its earnings tripled in fiscal 1993. Brady now
recommends another software vendor, Systems & Computer Technology,
which sells software and support services to colleges, municipalities and
utilities. This stock more than doubled since the beginning of 1993, but
Brady thinks there's plenty of growth left. At a recent 16-1/2, it trades at
18 times the earnings he projects for 1994.
Alison Bisno, director of research at Stephens Inc., the big Arkansas
investment bank, makes a plug for Blount (Class A), which makes the
chain that goes onto chain saws. Bisno likes its dominant market position
and fat operating margin.
Last year Theodore Rosenberg, a portfolio manager at Burney Co.,
picked Boeing. The stock rose 19%, and he's sticking with it. After
several years of retrenchments, airlines will resume ordering airplanes, he
says.
Lesa Sroufe, director of research at Ragen MacKenzie in Seattle, selects
Alberto-Culver (Class A), vendor of Alberto VO5 and other personal
care products. Promotional expenses and weak European economies
have been depressing earnings, but Sroufe expects the company to resume
its high growth rate, making the stock cheap at 14 times earnings.
Jerry Herman, a senior vice president at Kemper Securities in Chicago, is
one of our rookies. He likes Lesco, Inc., a maker of golf course and lawn
care products. He projects a 16% growth rate in sales over the next five
years and a 23% jump in earnings this year, to 85 cents a share.
Justin Mazzon, a senior portfolio manager at American Blue Chip
Investment Management in Larkspur, Calif., likes beleaguered
Woolworth. "It's no longer the five-and-dime people think of. It's getting
rid of deadwood and replacing it with stores like Foot Locker and
Northern Reflections," says Mazzon. Did you know that Woolworth is
one of the largest retailers in Germany?
Christine Munn, a vice president at Munn, Bernhard & Associates in New
York, recommends AmeriCredit, which makes car loans to buyers with
substandard credit ratings in the Midwest and Southwest. Doesn't
AmeriCredit have big credit losses? "If you miss a payment, the repo man
is at your door," says Munn.
Mark Keller, senior investment officer at A.G. Edwards in St. Louis,
recommends Esco Electronics, which was spun off from Emerson Electric
in 1990. Esco makes components for weapons like the Patriot missile and
the F-16. "With military budgets shrinking, money will be tight for new
systems, so upgrading older systems will be the way to go," says Keller.
Kurt Kammerer, a health care analyst at Advest Inc., likes Advantage
Health Corp., which operates the largest network of medical rehabilitation
facilities in New England.
Wayne Burgan, president of Analytic Capital Management in Naples, Fla.,
recommends Castle Capital, which trades o-t-c in Canada. The company
makes high-pressure pipes for offshore rigs. An intriguing but smaller
business is a proces Castle is developing to turn old tires and other waste
into usable gas or oil. Caution: Most of the miracle recycling inventions of
the past two decades have proved to be pure hype.
Now for the bears.
Our smartest short-seller last year was Stephen Carlson of Aspen Capital
Group in Denver. He expected trouble at InCoMed (formerly Alco
International Group), and he was right. Not only did the stock collapse,
but by the end of the year a former director of InCoMed was arrested and
charged with conspiracy, securities fraud and money laundering.
This time Carlson is knocking Embrace Systems Corp. (formerly Haben
Industries). Its business? "Selling stock, not product," says Carlson. That's
not entirely true, since Embrace sold $2 million worth of molded plastic
products in its last fiscal year. But that leaves its $45 million market
valuation a little steep-looking.
David Hines of Hines Management says that Columbia Gas
System--which filed for bankruptcy in July--has more bad news for
people who take his advice to short it. "Most of the value of the company
will go to the debt holders," predicts Hines.
Evan Sturza, editor of Sturza's Medical Investment Lettr; pans Aphton
Corp. It's working on immunological medicines to inhibit the growth of
cancer. His evaluation of the technology: "wacky."
Robert Lang, chairman of Lang Asset Management in Atlanta, is betting
against Deere & Co. "Overpriced at almost three times book."
Robert Stovall, president of Stovall/Twenty-First Advisers in New York
City, recommends shorting Charles Schwab & Co. Schwab is
spot-lighted in this issue (see p. 145) as the financial services company
best poised for future growth. "They're probably the best in the business . .
. but I just don't know how long {the bull market} is gonna last."
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