PICK JUST ONE.
(STOCKS FOR 1992)
By Steven Ramos and Warren Midgett
01/06/92
Forbes
Page 84
Copyright Forbes Inc. 1992
Our 1991 stock picking contest came out like the market: The bulls won,
the bears were routed. The ten bullish stock selections were up 50% over
the last year versus just 11% for the Dow industrials. But pity the poor
bears. They lost most of their fur. The short selections recommended by
the five bears not only didn't go down, they went up, gaining 30%.
Here's how our pick-just-one contest works. If your pick does well, you
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are invited back; if not, not. The six bulls who bear the market were
invited back again; only one bear was.
Our first-place bull is Van Brady , a partner in Presidio Management. His
choice last year, Healthdyne, gained 165%. This year Brady is defending
his title with EMC, a manufacturer of dist storage systems for midrange
and mainframe computers. Despite sales of $171 million in 1990, this
company seems to be mostly overlooked by computer analysts.
Byron Sanders, editor of The Speculator, a Sarasota, Fla.-based
newsletter that specializes in stocks under $20, picked Omega Health
Systems and saw it go up 133%. This year Sanders offers another health
care stock: LaserSight. Sanders says a new solid-state laser developed by
this firm will supplant the excimer laser now being tested for corneal
sculpting. According to Sanders, the new laser will probably be cheaper
and does not use hazardous gases.
John Granahan, president of an investment management firm in Waltham,
Mass. that advises Vanguard's Explorer Fund, rode Telxon to a gain of
75%. This year Granahan likes ConferTech International, a manufacturer
of sound-only teleconferencing systems--much cheaper, says Granahan,
than the video alternative.
Stephen Timbers did well with MBIA, up 61%, but has decided to quit
the contest while he's ahead.
John Tauer Jr. from Piper, Jaffray & Hopwood saw his stock, Philip
Morris, climb 36%, and he's resubmitting it. "It's a stock you can get for a
very low multiple, and we think the company can continue to grow at 20%
a year for the next four or five years," Tauer says.
Mariola Haggar, a senior vice president of equity research at Kemper
Securities Group, gained 32% with Baxter International; she's back with
another health care stock, Biomet. This firm sells orthopedic products like
hip and knee replacements. Isn't the stock a bit steep, at 67 times
earnings? Haggar's justification: The company is at the same stage
fast-growing U.S. Surgical was at three years ago. "They're branching out
into markets for less invasive surgery, such as arthroscopy," she observes.
Now for our new bulls. Carlene Murphy, a comanager of the Strong
Common Stock Fund, bets on First Brands, the maker of Glad plastic
bags, Pretone antifreeze and STP automotive products. First Brands stock
recently lost several points on news of an earnings decline. "They have
earnings power in excess of $3 a share, and you're getting it for $24," she
says. "The bad news is out."
With similar reasoning, Judith Aidoo, an investment banker in New York
City, picks IBM. "In looking at IBM's strong products, excellent service
and marketing, one can clearly see that the market has overreacted by
valuing this stock at roughly two-thirds its 52-week high," she says.
John Shaughnessy, director of research at Advest, picks Lifetime Corp., a
provider of home health care services. Reason: "It's in a very attractive
market, and the company should grow by about 20% a year for the next
five years."
Alan Bond, chief investment officer of Bond, Procope Capital
Management, chooses CML Group, maker of NordicTrack exercise
machines. Don't worry about a low 1991 holiday season here, he says:
Plenty of spouses will decide that exercise is just what their mates need.
Nikos Monoyios, vice president of equity securities at Guardian Life
Insurance, offers Plains Resources, an oil and gas producer that is losing
money but finding oil. Monoyios says the stock has been depressed by a
Louisiana oil well that was troubled by a loss of pressure. He thinks the
problem is manageable, and the stock could easily recover to its previous
high of 30 3/4, he says; that would be a double.
Both of the two foreign stocks recommended last year beat the
benchmark, a Morgan Stanley index of non-U.S. stocks. The best
performer was BSN, a French food manufacturer, selected by Nicholas
Reitenbach, now director of international investment for Pinnacle
Associates. BSN gained 14%, or more than twice as mcuh as Bank for
International Settlements. This time Reitenbach recommends a utility,
Hong Kong & China Gas, available as American Depositary Receipts.
The stock sells at 15 times what Reitenbach expects for 1991 earnings.
Newcomer Joseph Velli, a senior vice president at the Bank of New
York, selects Medeva, a British drugmaker. Medeva makes some generic
drugs and buys the patents and manufactures drugs developed by other
firms.
The only short-seller we invited back for another round was Benjamin
Kopin, now with Lynx Partners, a short-selling fund based in Chicago.
Kopin's
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short pick, Wells Fargo, eked out a gain but underperformed the market.
This time Kopin dumps on Sequent Computer Systems, which makes
parallel-processor computers for transaction processing. "It's a high-cost
producer getting squeezed from both ends of the market," he
says--supercomputers from Cray Research and others at one end and
workstations from Sun Microsystems and others at the low end.
Jonathan Epstein, an associate at Lehman Brothers, is one of our four new
bears. Epstein is knocking office supply chain Staples, trading at an
exuberant 173 times latest 12-month earnings, even as it confronts a flood
of imitators.
David Hines, a money manager in Conway, Ark., comes in with a third
candidate for disaster in computers: Egghead, a retailer of PC software.
"Egghead is like the mom-and-pop dime store. With the Wal-Marts of the
computer industry coming in, they just will not be able to compete," says
Hines.
Eric Kuby, chief investment officer of Rodman Advisory Services, is
bearish on Home Depot, recently trading at 58 times trailing earnings.
"People have gotten carried away with this company's growth prospects,"
says Kuby. "At its current price, the market is valuing Home Depot at just
over $60 million per store, a figure that just seems unreasonable."
Robert Doviak II, with Dallas-based Doviak Partners, recommends
shorting College Bound, a firm that offers test preparation classes to high
school and college students. This is quite some stock, having climbed
11,200% in just two years. Current market valuation: $200 million--this
for a company with $23 million in sales in its last fiscal year. Doviak says
he's uncomfortable with the company's reported numbers. "It is only a
matter of time before this bomb explodes," he says. |
