IF YOU COULD BUY (OR SELL) ONLY ONE.(STOCK) 01/08/90
By Steven Ramos
Forbes
Page 326
Copyright Forbes Inc. 1990
If you could buy (or sell) only one
EVERY YEAR at this time FORBES asks several professional investors:
If you could buy only one stock for the year ahead, which one would it
be? Our group made some astute selections last year: A portfolio
composed of their picks rose 45% (excluding dividends), versus a 28%
increase in the Dow Jones industrials.
To balance the bulls' recommendations, we also asked five bearish
short-sellers for their favorite dogs. The bears' performance was less
impressive than the bulls'. Overall, the sell recommendations dropped less
than 5%. Under our contest rules we invite back the six analysts whose
stock selections performed the best.
Our first-place winner is Van Brady , a partner in Presidio Management.
His choice last year, Cadence Design Systems, gained 147%.
What does Brady like for 1990? Another smallish (1989 estimated
revenues, $32 million) company called Health Images, Inc. (o-t-c, 8-1/2),
which operates outpatient magnetic resonance imaging centers. "By 1990
this well-managed company should do $40 million in sales and earn close
to 60 cents a share," says Brady. (Note: All prices are as of
mid-December and, given the market's recent turbulence, may differ
significantly from current prices. This should be kept in mind particularly
when considering the short-sale recommendations.)
A 90% gain in Chambers Development put Janus Capital's president,
Thomas Bailey, in second place. This year Bailey is recommending
Blockbuster Entertainment (NYSE, 17), a nationwide chain of
video-cassette retail and rental stores. Isn't the bloom off video rental in
general, and Blockbuster in particular? No, says Bailey: "To us it's one
heck of a business, much better than what Wall Street perceives it to be."
Video is also on the mind of Frederick Moran, president of Moran Asset
Management. After scoring an 83% gain with last year's pck of
Associated Communications, Moran says he is now buying Video
Jukebox Network (o-t-c, 6-1/4). Moran explains his enthusiasm for the
tiny $4 million (1989 estimated revenues) company by saying it is the only
TV show in the world where the view participates. Of course, this little
company is not for conservative investors.
David Elias, an investment adviser in Buffalo, N.Y., earned fourth-place
honors last year with his selection of Reebok International, whose shares
rose 65%. This year Elias' pick is General Electric (NYSE, 63-1/8). Isn't
this a big change of pace for Elias? Not realy. "Both are companies that
can participate in the global arena," he says.
Phillip Lamoreaux, a general partner in Lamoreaux Partners, favors
Hospital Staffing Services (o-t-c, 8-5/8), a firm that provides registered
nurses to hospitals on short-term contracts. "The acute nursing shortage,"
he notes, "is providing the company with a great opportunity."
Back for her second time is Morgan Stanley & Co. consumer products
analyst Brenda Lee Landry. Procter & Gamble, her pick last year, gained
58%. This year she thinks Gillette (NYSE, 47-3/4) will give investors a
smooth life. Landry is hoping that Gillete's new razor (the Sensor) will help
it gain market share and boost profits long term. "It's back-ordered for the
next 12 months, and they haven't even hit the shelves yet," says Landry.
She also expects Gillette, which has a major stake in Germany, to benefit
from the collapse of the Iron Curtain.
The six courages stock pickers whose picks missed were replaced with a
new crop of contestants. Byron Sanders, editor of the Speculator, an
investment newsletter in Sarasota, Fla., is counting on another
Florida-based firm to make him a contest winner. Sanders also likes a
small stock, General Parcel Service (o-t-c, 4-1/8), a Jacksonville-based
packed delivery outfit. Unlike the international package forwarding giants
such as Federal Express and UPS, ground-based General Parcel Service
has a small niche in Florida, where it delivers next day to anywhere in the
state. Tis firm is expected to do $6 million in revenues for the fiscal year
ending December 1989. Warning: General Parcel recently went public.
Similarize IPOS do not have a good reputation for price stability or
returns.
Another newcomer, Kathleen Wasescha, an equity manager at SunBank
Capital Management of Orlando, likes Southwestern Bell (NYSE, 57):
"The entire regional group is undergoing a revaluation from being safe
dividend stocks to being valued on the cash flow revenues of the phone
lines and diversification into cellular."
Two of our nwe contestants see opportunities in the troubled retail sector.
Senior Vice President David Katz of Value Matrix Management, a money
management firm based in New York City, opts for Pic 'n' Save (o-t-c,
12). "You're buying a market leader in the close-out retain industry at a
discount," sayd Katz. He thinks the stock could climb to almost 20.
John Tauer, a managing director of research at Piper, Jaffray & Hopwood
in Minneapolis, likes the Wholesale Club (o-t-c, 12-1/8). This firm is a
mid-western membership warehouse club similar to the Price Club. "It
could be an explosive grower, not just a short-term player," Tauer says.
The company, he says, is growing by 30% a year and already has 23
outlets. He expects earnings to rise from 58 cents a share in 1989 to $1
by January 1991.
Horacio Valeiras, an analyst with Credit Suisse First Boston in London, is
a new player who likes N.V. Philips (NYSE, 23-3/4), Europe's largest
electronics company. Valeiras is attracted to Philips' recent divesture of its
appliance division and defense operations and its 80% holding in PlyGram,
the leader in classical records (20% of PolyGram was recently sold in an
IPO).
Our other foreign stock comes from Shunichi Hari, Executive vice
president of Yamaichi International America's Japanese equities
department, who has selected Fanuc (Tokyo stock exchange, 54), the
world's top manufacturer of numerical control devices. Hari believes that
increasing Japanese labor costs will create an expanding market for
robotic equipment.
As we did last year, so this year we again solicited short-sale
recommendations from some of the investment world's better-known
bears. Note that a pack, they did not cover themselves in glory in 1989.
The one who did worst wast Thornton O'glove, publisher of the Quality of
Earnings Report. O'glove picked Acuson as the best issue to short. But
the manufacturer of ultrasound imaging devices beat our portfolio of long
picks with a gain of more than 52%. Ouch!
The award for the best short selection goes to Malcolm Lowenthal of
Shearson Lehman. His choice, Traditional Industries, fell 43%. This year
Lowenthal thinks Bolar Pharmaceutical (AMEX, 18-1/4) is still in for a
tumble. Bolar is a generic drug manufacturer and has been under heavy
fire for misrepresenting its drug tests to the FDA. Says Lowenthal
bearishly: "It's expensive to withdraw drugs from the shelves, and Bolar
stands to lose between 40% and 60% of its business."
Another bear, Alan Gaines, president of New York City-based Gaines,
Berland, is betting on Panhandle Eastern (NYSE, 30) to fall: "It's an
over-leveraged gas pipeline, and they overpaid for thier acquisition of
Texas Eastern." He points out that a possible stock offering scheduled for
later this year will be dilutive; he expects the dividend to be cut in half.
How did Gaines do last year? Not badly. His short pick was NEC, which
fell 18%.
Last year John Brooks, an analyst with Davis, Mendel & Regenstein of
Atlanta, Ga., suggested, shorting Matsushita. Since Brooks'
recommendation the stock has dropped 13%. Now Brooks thinks
Compaq Computer (NYSE, 81-5/8), the leading maker of
IBM-compatible computers, which went on a slide in December, still has
a lot more room to fall. "We will hit a recession next year, and these
technology stocks are going to get their hearts ripped out. A 3% increase
over 1989 earnings is not enough to keep the bears away from the doors
if we go into an economic slowdown," says Brooks.
Michael Murphy, editor of the Overpriced Stock Service in San
Francisco, was bearish on CopyTele last year. It dropped only 1%, to a
recent o-t-c price of 12-3/8, but Murphy is staying with it again: "This is
the year CopyTele goes down. It's runningout of money, and they didn't
do anything they said they'd do in 1989." The shorts have been touting the
imminent collapse of CopyTele for years.
Our new short-seller is Benjamin Kopin, vice president of research at
Gilford Securities. Kpin's choice is Green Tree Acceptance (NYSE, 17),
a company that repackages mortgages on manufactured homes; Geico,
controlled by Warren Buffett's Berkshire Hathaway, owns 7.6% of the
firm. Kopin thinks the outlook for manufactured homes is dim. "Foremost
Corp. of America, an insurance company which underwrites homeowners
insurance for mobile homes, projects repossessions will occur on nearly
40% of the loans in their insured portfolios," glowers Kopin, who expects
Green Tree stock to go below 10.
How well will the bulls and the bears do against the market and each
other? Tune in next year.
ILLUSTRATION: cartoon - table CAPTION: At the starting line: long
selections and short selections. - At the finish line: long selections and short
selections. |
