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Stock picks by the pros
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January 4, 2000: 12:28 p.m. ET
Sony, NTT, Merrill Lynch, Goldman Sachs, Avon, Disney get nod
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NEW YORK (CNNfn) - Financials are set to flourish in 2000, according to at least one analyst, and while tech stocks continue in favor, look for a downturn later this year, warns one money manager.
Several financial services companies, consumer goods stocks, and two Japanese corporations made their appearance on Tuesday’s pick list.
Here are some of the stocks recent guests on
CNNfn are buying and why:
"It’s hard to know on a daily basis how the stocks will react,” says Joan Solotar, brokerage analyst at Donaldson Lufkin & Jenrette, in reaction to yesterday’s moderate market correction, "but I think to some degree it was reaction to the sharp move in interest rates, and I also think it was a needed correction after a huge move toward the end of
last year.”
"I’d be buying now. We’ve been recommending overweighting the brokerage group since the middle of last year. I think there is continued strength in the fundamentals of the group. [The major players] are all over the lot, but right now, Merrill Lynch (MER), [for example], is trading at about 13-1/2 times earnings. Morgan Stanley (MWD) is up in the higher teens, as is Goldman Sachs (GS).
Most of [these stocks] are trading below their historical average and are very attractive relative to the market.”
Solotar has a buy rating on Citigroup (C), saying "global firms generally have done particularly well because we’re starting to see actual activity outside of the U.S., and those firms are very well-positioned [to benefit from international business operations].”
Among her picks, says Solotar, "Goldman Sachs would be the best leverage play on business in Europe, which I think will grow significantly this year. It’s also the most leveraged play on the institutional market. Merrill Lynch, on the other hand, would be more of a play on the retail side, which we are also very bullish on in 2000.”
‘Pro’ bonus: View Solotar’s commentary on Merrill vs. online brokerages: [7.39MB MOV]
"You know, making a call on the market is never easy,” says Bob Dickey, technical market strategist at Dain Rauscher Wessels, "and this year seems to be more difficult than others, mainly because of the big [difference] between the action [on the] Nasdaq and the rest of the market. I’d have to say that Nasdaq probably has more correction risk than the rest of the market. At some point during the year 2000, I think we will see the Nasdaq down 15-20 percent, maybe half of that for rest of the market.”
In the meantime, says Dickey, "I would look at some of the airline stocks. Maybe with the weakness in oil, these airlines will pick up. They sure look good to me on a technical business. AMR (AMR) would be one of my favorites in that group. Also, I think the energy stocks are still really good long-term core holdings, and given some weakness there over the next few days, we could see some good opportunities in that group. Exxon Mobil (XOM) would be one of my favorites [in that area].”
Despite his bearish misgivings on some of the tech high-flyers, Dickey’s last pick is PC maker Dell (DELL). "Dell Computer has been ignored here too, with IBM (IBM) and a few other of the box makers like Compaq (CPQ). I do like that group. I think that group has been underperforming for a while. I am starting to see new money go into the stocks, especially [stocks] like Dell. The stock has been moving up on better volume, which is an indication of renewed investor interest there. Dell [had] been stuck in a $35-$50 trading range for the past six months, [and has] recently broken out through that $50 level. I think the stock is [due this] year for a move up [to the] $65-70 area.”
If Asia is starting to look more attractive to investors, says David Ishibashi, portfolio manager at Smith Barney Asset Management, it has at least as much to do with cultural iconoclasm as it does with a resurge in economic growth. "What’s happening now is a whole culture of change coming in. Up until a couple of years ago, until the Asian crisis came, these companies were pretty much either run by cronies because you had [ties to] autocratic governments, or you actually had family-run businesses. And now what’s happening is [we are starting to see more instances of] equity ownership or that shareholder base starting to spread out. So, restructuring and deregulation come through as major topics as far as what’s happening in [Asian] corporate culture. I think we’re [heading into] inning two [right now]. What’s happening is you’re starting to see that whole culture really start to change. And nobody’s more devoted than the newly converted. The Japanese and the rest of Asia are now starting to see the cataclysm of change.”
Among Ishibashi’s top Asia picks are Sony (SNE) and Japanese telecom NTT(NTT).
"Sony’s really starting to become the leader of the Japanese market,” says Ishibashi. "It’s taking advantage of the product lines that [it already manufactures well]. It’s also going to become a Web play in the sense that they’re going to have set top boxes coming out to market with Play Station II.”
NTT is "in the midst of change. About two years ago, they started to actually split off a couple of the divisions, their wireless unit, DoCoMo, and also their data unit which is kind of like the Anderson Consulting of Japan in the sense that they [offer] all kinds of Internet services and computer-related services.
[Near-term], says Douglas C. Lane, president of Douglas C. Lane & Associates, "we expect a series of small explosions in the technology area, followed by big rallies. But as the year progresses, we expect technology to be down.”
"I think the corrections could be fairly significant in the Nasdaq, even [among] some of the big-name stocks. We’re beginning to transition our capital out of technology or at least reduce it. We’re aiming for sectors of the economy that are pretty cheap. Consumer goods is an area that’s pretty cheap.”
”I haven’t historically invested much in consumer goods,” admits Lane, "but with Avon(AVP) down 50 percent from its high, with Disney(DIS) down
from 46 to 28-29, these stocks are looking much more reasonably valued, particularly relative to the market as a whole. [Another benefit is that] the Avons and the Disneys have extremely strong international exposure [as well].”
Lane also sees some opportunity in health-care services-related stocks, saying "they have been a neglected area in the stock market for a long period of time, particularly because of legislation in 1997. That was reversed to some extent in December of 1999. We’re very positive on health-care companies, particularly a company called Health Management Associates, (HMA) which is really just a chain of about 35 hospitals in the Southeast area. They’ve been very propicks and actually the government’s given them higher prices in many areas going forward.”
However, Lane says, if he had to buy one tech stock today, "I’d probably buy a small company called Informix (IFMX). They make a database for complex data, primarily [used by] Internet companies. And they have a chance in the first half of this year to gain traction in the marketplace. And if they can do that, they can really be a big player in a small niche.”
"I like to go into the dog house type of stocks sometimes,” says Al Goldman, chief market strategist at A.G. Edwards, "and [am doing that, currently], with the pharmaceuticals. Something like Schering-Plough (SGP). Or medical technology. I think Medtronic (MDT) is attractive. And, believe it or not, even though they behave like there’s no tomorrow on the down side, I think the financial group and some bank and brokerage industry [stocks] look attractive to us, on a contrarian basis.”
‘Pro’ bonus: Hear Al Goldman on tech stocks:
Select [847K WAV] or [847K AIFF]
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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