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Stock picks by the pros
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December 20, 1999: 12:23 p.m. ET
Saatchi & Saatchi, Ariba, F5 Networks, Redback touted
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NEW YORK (CNNfn) - Advertisers, retailers, and tech companies all won praise from equity analysts and money managers Monday.
Here are some of the stocks recent guests on CNNfn are buying and why:
"The Nasdaq is up for a reason,” says Donald Selkin, chief investment strategist at Joseph Gunnar, "...the projections are that for the next five years, Nasdaq profit growth is going to increase by 30 percent against S&P profit growth for about 14 percent. Another interesting statistic is that of the top 50 stocks in the S&P - there are, of course there are many Nasdaq stocks in there, such as Microsoft (MSFT), Cisco (CSCO) -- they are going to generate about 75 percent of the profit growth. So, it’s not unjustified, the fact that this small group of large cap leaders is kind of running away and the rest of the market is really doing nothing. There’s a reason for it. People say, well, this is not healthy for the market, because you have this select group going higher, [while] the rest of the market does nothing. But they’re really reacting to the fundamentals, so investors might continue to work on that track.”
Investors should not fear minor price corrections, according to Selkin. "There are days when the stocks pull back. For instance, last week, Sun (SUNW) pulled back 5 points. It gives you a little bit of an entry at a lower level. Nokia (NOK) dropped before it rallied on Friday. It dropped about 20 points from its high. [In this case], you have to take the stocks that have been the leaders, that have the best prospects going forward. Wait for pullbacks. If we drop on the opening or during the course of the day, people might want to try to pick up a few of these stocks.”
Selkin names several stocks that are his top-ranked favorites. "We like Oracle Systems (ORCL) very much. They had tremendous earnings last week. We also like Adobe Systems (ADBE), which also reported very, very good earnings on Friday, 46 against 38. We also [favor] Ariba(ARBA). Now, that stock is splitting today, 2-for-1. So, it traded at 250 last week, it will open around 120, 125. They’re involved in the business-to-business e- commerce Web-site construction. We think it’s a very, very good story.”
"Moving away from the tech sector, we like [some] advertising firms. [Saatchi & Saatchi (SSA) is one pick in this area]. This year is going to be a big year for advertising, what with the Olympics, the presidential election coming up. Another stock, which I had recommended here months ago, Omnicom Group (OMC), has done very, very well. And also WPP PLC (WPPGY) has done well. So, that whole advertising field is doing very, very well. Of course there’s also a big push now in online advertising. So, this is a new venue for growth. So, I think [these are some] interesting stocks that people might want to look at.”
"As long as we’re not living in caves in January, Y2K, my guess is that the retail brokerage and investment business in 2000 will be good,” says Dean Eberling, brokerage analyst at Putnam Lowell De Guardiola. "And we’ve actually been fairly bullish about the brokerage environment, although selective about stock picking across the group. [We’re] looking at firms like Merrill Lynch (MER), [even though] the market’s been debating their Internet strategy. We think it [is the] perfect way to marry the high-touch nature of Merrill’s full service brokerage business with the high tech world of the Internet. But it’s at a significant discount on a multiple basis. And we think they’re going to get right. So, therefore, we expect earnings to improve, but also for the multiple to expand, which we think is critical.”
"People are looking at the top line revenue growth,” says Annette Geddes, portfolio manager of M. D. Sass, "which in many cases is in triple digits.” Top-line growth can be found in small-caps, says Geddes, as long as the investor selects with prudence. "We’re looking at infrastructure plays for the Internet. Companies like Redback Networks (RBAK) which provide high-speed access, which we think really has the potential to become another Cisco. It really is controlling the gateway to the Internet. Then companies like F5 Networks (FFIV) that help to control traffic over the Internet, traffic flows, and E.piphany (EPNY), which is a software company helping companies to manage their sales and marketing function.” Redback, in particular, says Geddes, is "a long-term hold.”
It is useful, when deciding which small caps to invest in, "to look at what their competition is doing and [where the] company is making alliances. The reason [some of] these companies have moved so strongly is because there have been a series of positive corporate announcements from a lot of the smaller Internet names [about their strategic] deals with [companies] like IBM (IBM) and Microsoft (MSFT) and Intel (INTC).”
"We continue to see strength in Abercrombie & Fitch (ANF) [among others],” says Mark Friedman, specialty retail analyst at Merrill Lynch, of the retailers scoring well with this year’s holiday shoppers. Many of the specialty retailers have become destinations because they [have established as much of a brand presence] as the department stores and the younger consumer is doing more shopping in many of the specialty stores.”
"Our favorite stock, [however], is not a big Christmas stock. AnnTaylor(ANN) is trading at a reasonable valuation. The demand for their merchandise is quite strong, and at these levels the stock offers significant upside over the next year. The stock’s down 5 1/2 percent. It’s had a rocky ride here.”
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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