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Stock picks by the pros
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October 11, 1999: 12:32 p.m. ET
Continental, Southwest, Washington Mutual, United Airlines lauded
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NEW YORK (CNNfn) - Analysts and money managers showed enthusiasm Monday for airline stocks and financial services picks, among others. Here are some of the stocks recent guests on CNNfn are buying and why:
"Long-term to me," says Ray Neidl, airline analyst at ING Barings, "is a year in this business. If we're going to have a recession, you should probably lighten up on your airlines, because they're still cyclical. But there has been a lot of restructuring in the airlines, the way they run their business. I think they will come through the next recession."
Neidl sees opportunity in two stocks that will come through a recession very well. "I still have Southwest (LUV) as a strong buy. Their stock was beaten up worse than other airlines over the summer. A big part of that was because they're largely unhedged as far as fuel. They took the hit up front. Other airlines are somewhat protected with hedges. But that's an advantage for Southwest now, because they've got most of the increase out of the way in their P&L statement." Neidl says the stock "could easily go up to $25 a share. That's conservative. It's a growth story long term. I think they can increase EPS per share by at least 10 percent a year with their growth."
Among the bigger players, Neidl's favorite is Continental Airlines (CAL). "The industry is not a growth industry;" he says, "you're looking for 3 percent growth, but I think Continental can do better than that simply because they're building up their inefficient hubs at Houston and Newark. They're not inefficient, but they're underutilized, because of the problems that Continental had in the last decade."
"Continental can easily go up another $5 or $10 a share," says Neidl, "as we head into the expected airline rally next winter."
"The case with the financials is the economy will grow straight through the year 2000 and probably through the year 2001," says Charles Lemonides, chief investment officer and senior portfolio manager, M and R Capital. "And these stocks are trading as if there is a recession coming around the corner ... but it's not. With names like Chase Manhattan (CMB) trading at 14 times earnings, I think the valuations are compelling."
Lemonides also likes Washington Mutual (WM), saying "there's no takeover premium there now. The stock is down from the high mid 40s, down to just about $30 a share."
Another Lemonides pick is transportation company Union Pacific (UNP). "In Union Pacific, we see a turnaround story. ... They've been doing a good job in terms of getting their house in order, getting the trains moving and getting market share back. You'll see earnings there grow 30 percent year over last year. It's a stock that's off its high in an important way and I think (there is) great risk/reward here."
Lemonides also likes United Airlines, a subsidiary of UAL Corp. (UAL). The airline, he says, "will benefit from the little pullback in oil prices we've had. The airlines got tattooed on the notion that oil costs were going to kill them in the recession. The Fed was telling you the recession was coming by raising rates, but it's not happening. Without a recession, you see that stock back up from the 80s, down from 100 right now."
In general, says Lemonides, "there's been a fantastic opportunity to add good quality companies that have been absolutely decimated over the past year, and the list of these companies goes on and on from Rite Aid (RAD) to Waste Management (WMI) to Disney (DIS), which is not quite in the category in terms of decimation, although the stock is meaningfully off its high. These companies, though, have great long-term potential. They own their markets for all intents and purposes and they're trading at valuations that are at this point very depressed. Waste Management is trading at something like seven times what analysts used to think they could earn next year. They may not earn it next year, but they'll earn it the year after."
"You have to be careful in the biotech world," cautions Roy Blumberg, chief investment officer at Sheer Asset Management. "You have to understand your products and understand your companies and make the correct decision, whereas in the pharmaceutical area, these companies have a variety of different products, so there's a certain amount of safety in numbers. If one product does not work, others will work. Pfizer (PFE) (for one) has a great pipeline. We own and like Pfizer. Merck (MRK), too, is another name that should continue well."
The views presented here are solely those of the analysts quoted. They do not represent the opinions of CNNfn on whether to buy or sell shares of a particular stock.
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