IF YOU COULD PICK JUST ONE.(STOCKS) 01/07/91
By Steven Ramos and Warren Midgett
Forbes
Page 312
Copyright Forbes Inc. 1991
THE BEARS WON by several lengths in FORBES' 1990 annual
if-you-could-buy-or-sell-only-one contest. Shortsellers saw their picks fall
an average of 35% last year. The bulls were left in the dust: in 12 months
their buy choices fell 5%, matching the decline in the Dow.
To stay in FORBES' "only one" contest an analyst must have come out a
winner in the previous year's sweepstakes; the losers are dropped and
replaced by fresh contestants. Four out of our five 1990 bears are back
this year. Only one has been dropped, john Brooks of Davis, Mendel,
Regenstein, whose short candidate, Compaq Computer, went up instead
of going down.
The hottest bear analyst was Malcolm Lowenthal of Wertheim Schroder.
He shorted Bolar Pharmaceutical, which fell 79%. Lowenthal thinks
McDonnell Douglas (NYSE, 46 1/8) will help him defend his title and
return for a sixth time. "Most of their major new projects are suffering
serious cost overruns or delays, cash flow is negative and defense
spending is coming down regardless of what happens in the Gulf," say
Lowenthal.
Alan Gaines, president of Gaines, Berland, did well shorting Panhandle
Eastern (NYSE, 11 1/8); it was down some 60%. For 1991? Same
stand. He's still shorting Panhandle Eastern. Their "business stinks," barks
Gaines. "They'll be bankrupt by this time next year, if not earlier."
Michael Murphy, editor of the Overpriced Stock Service, picked
CopyTele last year; it dove 35% last year. For 1991 he has Chase
Manhattan Bank (NYSE, 11 3/8) in his sights. Never mind that the stock
is already down nearly 70% in a year. "Of all the major banks, Chase has
the best combination of too much leverage and really lousy loans," he says.
Benjamin Kopin, a vice president of Gilford Securities, picked Green Tree
Acceptance last year. it was down 31% for 1990. Wells Fargo NYSE,
56 3/8), the nation's 12th-largest bank, is Kopin's target for this year.
Kopin believes the bank's real estate and LBO portfolios are in bad
shape. "As the California real estate market fades into the sunset, a lot of
things are going to come back to haunt them," says Kopin.
Seven of last year's 12 bullish stock pickers dropped off our list this year.
But not all the bulls were sent to the slaughterhouse. Here are those whose
picks paid off:
John Tauer of Minneapolis-based Piper, Jaffray & Hopwood shone. His
choice, Wholesale Club, a members-only warehouse retailer, rose 67%.
What's his choice for this year? Tauer is defending his title with Philip
Morris (NYSE, 51 1/4). He likes the stock's low P/E (13), as well as its
earnings growth potential and above-average dividend growth. Most of
all, Tauer likes Philip Morris' bountiful-$2 billion-supply of cash, which
could be spent on international food companies like recently acquired
Swiss coffeemaker and confectioner Jacobs Suchard.
Another sleek bull was janus Capital President Thomas Bailey. His choice
for 1990, Blockbuster Entertainment, gained 38%-enough to put him in
second place. This year he likes Mid-American Waste Systems (o-t-c,
27), a midwestern landfill management firm. "It's cheaper than Chambers
Development or Waste Management and better run than Browning-Ferris.
Growth over the next few years can be pretty dramatic," says Bailey.
Morgan Stanley's consumer products analyst Brenda Lee Landry also did
pretty well on the bull side. Her pick last year, Gillette, gained 26%. She is
playing it safe this year, recommending Procter & Gamble (NYSE, 86
1/2). She likes its cash flow, clean balance sheet and relatively
recession-resistant business. "Even if oil spikes up again, they can pass on
the price increases," claims Landry.
Van Brady , a partner in Presidio Management, is selecting another
medical-related issue. Brady's previous choice, Health Images, rose 15%.
His new favorite: Healthdyne o-t-c, 8 1/2), the second-largest U.S.
supplier of obstetrical home health care. "It offers a much lower health
care cost alternative by keeping patients out of hospitals and treating them
at home, says Brady. Byron Sanders, editor of the Speculator, is also on a
health kick. He's going with a smallish company called Omega Health
Systems (o-t-c, 4 1/2), an outfit that operates and manages eye care
clinics. He's banking on new chief executive and major shareholder
Andrew Miller, who founded Surgical Care Affiliates in 1982. Its 1984
initial public offering was one of the more successful ipos of the decade.
Sanders doesn't think Omega Health Systems has the same explosive
potential, but he does project that sales will rise to perhaps $50 million in a
few years. Small companies are Sanders' forte: His choice last year,
General Parcel Service, rose 6%.
The first newcomer to the FORBES "only one" sweepstakes is Mariola
Haggar, vice president of equity research at Prescott, Ball & Turben in
New York. Haggar expects Baxter International (NYSE, 28,5/8), the
world's largest manufacturer and distributor of hospital supplies and
equipment, to rebound this year. The company had a $566 million writeoff
in 1990 but is forecast to earn just under $2 a share this year. "Based on
P/E, price to sales and price to book, it's the cheapest hospital supply
stock out there," says Haggar.
Although entertainment stocks were down 30% this year, Steven Neamtz,
a senior vice president of the Investment Trust of Boston Fund, is betting
on Tom Bailey's former pick, Blockbuster Entertainment (NYSE, 25 3/8),
the nation's leading operator of videocassette retail and rental stores. "It's
a good recession stock, because people will still spend money on
entertainment," explains Neamtz.
Chicago-based Kemper Financial Services' chief investment officer,
Stephen Timbers, also has a stock he thinks is suited for. troubled times.
His pick, MBIA (NYSE, 27 7/8), insures municipal bonds. Timbers
observes that as people begin to worry about municipalities' being able to
service debt, the demand for MBIA'S insurance will increase. He likes
MBIA'S long-term debt-free balance sheet-a positive point when other
insurers are having financial difficulty.
Another newcomer, Dwight Pike, a vice president at New Haven,
Conn.based investments Knights of Columbus, likes Avery Dennison
(NYSE, 19 3/4), one of the world's largest suppliers of office products.
"They are making all the right moves to stay competitive." Avery recently
merged with Dennison Manufacturing.
Jack Granahan, president of an investment management firm that bears his
name in Waltham, Mass., picks Telxon o-t-c, 13 7/8), a maker of
hand-held computers used for inventory-gathering and field research. Even
during hard times companies use this type of equipment to cut costs.
"They've already made some payroll cuts last year and are on the rebound
when everyone else is on the decline," says Granahan.
New player Nicholas Reitenbach, a global portfolio strategist at Yamaichi
international America, has selected French food and drink giant BSN
(o-t-ctraded ADRS, 30 3/4). "It is a very well balanced company and is a
blue chip on the French market," boasts Reitenbach. The name "BSN"
might not mean much to most Americans, but the company has
high-profile products such as Dannon Yogurt and Evian Spring Water. He
feels BSN should benefit from its recent acquisitions of biscuit and salted
snack food makers, including Nabisco's Malaysian and Hong Kong
subsidiaries.
This year's second foreign stock comes from Jean-Marie Eveillard, a
portfolio manager of the SoGen International Fund. This mutual fund was
on our last honor roll (Sept. 3, 1,790). The fund, distributed by Sogen
Securities in New York City, has 8% of its assets in gold-related
securities. That's one reason Eveillard is picking Bank for International
Settlements (o-t-c, Basel, Switzerland, 3,869). "Having this stock is like
having gold at below 50 an ounce," says Eveillard. He notes that its vaults
arc filled with gold, it has no junk bonds or real estate loans, and it sells for
less than eight times earnings while yielding over 4%.
Our sole new short-seller is Joseph Barthel, Hopper Soliday's director of
investment strategy. Barthel says hotel and food operator Marriott
(NYSE, 13 5/8) is loaded with problems. This stock is already down
70% from its 1987 high, and Barthel thinks it could sink to 7 by year-end.
"It's loaded with debt, and its marginal dividend yield isn't enough to
support it {the stock}," he says.
This year's bears seem to have stronger convictions than do the bulls. The
bulls, for the most part, are defensive. It's hard not to be, given all the
hand-wringing stories showing up in the daily press. Which leads to a final
bit of advice: just remember, the consensus is often wrong. !!! TABULAR
DATA OMITTED
ILLUSTRATION: table CAPTION: Stocks the experts love - and hate;
the bad news bulls. (table) |
