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Stock picks by the pros
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December 14, 1999: 12:39 p.m. ET
IBM, Home Depot, Intel, EMC, NEON, Omnicom win praise
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NEW YORK (CNNfn) - A handful of financial services companies, several technology companies and an upcoming IPO were among equity analysts’ and money managers’ top picks Tuesday.
Here are some of the stocks recent guests on CNNfn are buying and why:
"If we made the call that if you stick with the telecoms, the wireless, the e-commerce names, the technology for hardware and software,” said Ash Rajan, market strategist, Prudential Securities, "you’re going to be OK, provided you play by the rules: earnings visibility, leadership, good execution, good management.”
Rajan named several stocks that fit his criteria; "Certainly from the telecommunications arena, two names that are cheap [right now] are Nextel (NXTL) and WorldCom (WCOM). But then on the other side you have something like a New Era of Networks (NEON) or a BEA Systems (BEAS), e-commerce [and b-to-b] names that are just blazing. And Oracle (ORCL) is down three or four points today, I think that will make it very attractive in the software space.”
"As a growth manager,” said Grace Fey, portfolio manager, Frontier Capital Management, "there is no doubt that you want to be in technology and telecommunications. And [those two areas] combined right now make up about 35 percent of my portfolio.”
"But I have opted to play it through companies like MCI WorldCom (WCOM), General Motors’ (GM) Hughes, which is a satellite company, Cisco (CSCO), Lucent (LU), those companies [which are already] doing well on their own that will probably grow because of this explosion of the Internet.”
Another Fey pick is Omnicom (OMC). "It’s interesting because it’s a stock I have owned for probably seen years, throughout all my portfolios, and now suddenly it’s gone from a consolidation play to a dot-com play. And yet, I think there’s some validity there. I think it is a dot-com play. I think that increased advertising is an offshoot of the growth of the Internet. And a relatively safe way of playing it in terms of the quality of their earnings.”
Fey also saw possibilities in Merrill Lynch (MER), saying "I think that it’s been under a cloud for a while. Some of the other brokerage firms have been doing better. But I think Merrill is going to work out their problems and re-gain their identity and what we’ve been trying to do at Frontier is to beef up that financial services sector, trying to identify areas other than technology that offer good growth.”
"Consumer discretion, [for example] still looks very good and that would [make] companies like Wal-Mart (WMT), Loews (LTR), Home Depot (HD), Carnival Corp (CCL) [attractive]. I think financial services, which [not done so well] this year, really offer some opportunity right now going into next year. And I think technology will still do well, but for me I just don’t want to get so excited ... because when they correct, they really correct.”
"What’s the best group for the last week?” asked Robert Bloom, market strategist and president, Friends, Ivory & Sime. "It’s technology. What’s the best group year-to-date? Again, it’s technology. [But] would stay with the ones that haven’t disappointed. We mentioned Cisco (CSCO). That’s been one of our favorites for a long time. That’s the fastest company to get to $300 billion in market cap ever. In fact, it beat Microsoft and it beat GE by a substantial margin. They must be doing the right things. They’re in the right place. They’re well managed. They continue to innovate and bring out new products, and we think they can sustain growth of 30 to 35 percent. So we would stay with that [stock].”
Bloom, who discussed his stock picks this Monday, also said he likes IBM (IBM), even though "the stock went off very, very sharply [recently]. It went off 30 percent in fact. And we would use that weakness because they quite clearly said it’s a Y2K changeover problem that would affect them in the fourth quarter. They told us by how much. It would also affect them in the fourth quarter and gave us an indication to that. So that uncertainty is now behind us and they said next year would be a very good year. If that’s right, and we think it is, then the second half of Y2K should be quite strong for IBM. The bad news is already discounted.”
Bloom also liked two retailers, Home Depot and Wal-Mart. Home Depot (HD), he said, is "actually one of two companies in the retail field that have gone up 10 times in the decade of the ‘80s, and another 10 times in the ‘90s. And I’m not sure it’s going to do it again in the next 10 years, but obviously, they have a recipe for success and they are now talking with AOL (AOL) about possibly adding an e-commerce, Internet access which would be another leg of growth to give them growth into the future.”
"Wal-Mart (WMT), too, also went up 10 times in each of the two decades. All we’re saying is it pays to stick with the biggest and the best as long as they continue to deliver, and both of these companies are delivering.”
"I expect when we get right down to the last few trading day,” said Eleanor Hoagland, chief portfolio strategist at AMT Capital Management, of the hyped countdown to Y2K, "you’ll see a lot of volatility. Those people who feel they have money to invest and those people who have squared away their positions and don’t want to budge until they pass over that date. But on the whole, cash flow is positive this time of year. And I think investors have been pretty pragmatic. If I have got a Y2K problem sitting in cash, I have got a Y2K problem, I might as well buy a company they know will be around -- and the world will go on even if there are problems.”
So, said Hoagland, the following stocks might be good bets for even the most millennium-leery. "The stocks we like are stocks we’ve liked for a while. We continue to like Morgan Stanley Dean Witter (MWD), which we find is just a premiere global franchise. It benefits from all kinds of growth outside of the US. And inside the US, we think it’s very reasonably valued and it’s been a major user of and facilitator of technology both in the capital markets and in its own business. Lately, we’ve been buying Intel (INTC). Whatever happens in technology at the end of the day, we feel Intel is likely to remain a beneficiary of that worldwide, very strong momentum trend [towards the adoption of technology as business growth factor] that we see continuing.”
Hoagland also said she likes Microsoft (MSFT), regardless of the pyrotechnical anti-trust suit it was mired in over the past year, and the unfavorable ruling which may lead to the breakup of the software giant. "It continues to generate tremendous cash flow. It has, in essence, the ability to participate in whatever is the next wave. It’s certainly a well-run company. It’s also highly liquid. If we have disruptions that come out of Y2K, I would prefer to be in stocks that are relatively liquid, than the ones that are going to jump around; it helps to have prices that are more rational rather than prices which are disjointed.”
Richard Peterson, IPO analyst, Securities Data Company, said the upcoming IPO of "Cross-border data-service provider Infonet Services will probably be the last billion-dollar IPO of the decade, of the millennium, [amid] a whole slew of billion dollar IPOs this year. It is a Merrill Lynch deal, and Merrill Lynch earlier this year had a big winner with Internet Capital Group (ICGE), an Internet incubator, up several thousand percent. I don’t think this company will match that performance, but nonetheless, there have over $300 million in revenue, I think $30 billion in EBITDA, so there’s a bottom line there, unlike other tech and telecom companies where there is no bottom line.”
When it comes to investing for growth, said Alfred Kugel, senior investment strategist, Stein Roe & Farnham, "We still have the best growth prospects, of course, in the technology area. So you really need to have some of your money in those stocks. The two that we are liking very well this week are Cisco (CSCO) and EMC Corp. (EMC).”
"[For value, however], if you look at for the best combination of good earning growth, not spectacular, but good, let’s say middle teens, at a discount multiple, you have to come back to financial services stocks. And today, I would say Citigroup (C) and Fannie Mae (FNM) look quite attractive to us.”
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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