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Stock picks by the pros
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March 8, 2000: 12:53 p.m. ET
EDS, Quaker Oats, UPS, Cisco, Sun, Colgate, Merck win praise
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NEW YORK (CNNfn) - The "old" versus "new" economy debate cropped up again Wednesday as analysts and money managers argued for and against stocks in both areas.
Several tech stocks were listed among guests' favorites, but several depressed 'old guard' stocks also came in for mention as good buying opportunities.
Here are some comments on the stocks that recent guests on CNNfn are buying -- and why:
 "We think the economy will continue to do very well [regardless of hikes in interest rates designed to rein in the U.S. economy], said Kevin Bannon, chief investment officer, Bank of New York. "That's really going to be the driver of demand for stocks such as delivery services company UPS (UPS: Research, Estimates)."
"UPS is a stock we like, especially at this price, a little bit of the excitement is out of it after the IPO," he said. "The stock is down from 75 to 50."
"Obviously, this company is a big user of energy," Bannon said. "Oil shouldn't have been at 11 a year ago. It shouldn't be at 34 now. It will eventually settle at a price that will let UPS do very well."
 "I think, it's going to be very, very hard to get people seriously interested in energy stocks, although you never can say never on Wall Street," said Bannon, on a related point. "We would prefer to own some of the drillers, because with oil prices at the this level, it's going to encourage anybody, any country anywhere who might have some oil to look for it. And that will be good for the drillers. We would rather own those than the oil companies themselves."
"We do, however, own a lot of technology stocks," Bannon said. "They haven't really come off all that much from their highs. But I think you've got to own the great core companies like Cisco (CSCO: Research, Estimates), EMC (EMC: Research, Estimates), and Sun (SUNW: Research, Estimates). We like some of the fiber optic companies; Lucent (LU: Research, Estimates) is one stock which is not pushing new highs that might be a good long-term holding for portfolios."
"Unfortunately," said Ned Riley, chief investment strategist at State Street Global Advisors, "we've got two types of investors right now in this market. We have got this new investor, the new breed that's brash, bold, aggressive, and very short-term oriented, who has not been through a real bear market."
"Then we've got the older investor -- and I say older in terms of experience -- I suggest that they should focus on the longer term," he said. "Focus on some of those stocks that have been damaged the most. I know it takes a tough stomach, and probably a lot of Tagamet, to go out and look at those types of stocks."
"A prime example is P&G (PG: Research, Estimates), people are throwing around these numbers as if they are disposable. It's interesting because I read in the newspaper this morning that someone referred to P&G's multiple at 30 times," Riley said. "Well, it's not 30 times; it's 20 times, assuming they earn $3 a share in the year 2000. Now, I'm not saying it's a cheap stock, but clearly, P&G can grow at 10 percent, and a multiple like that is still a heck of a lot better than paying in for some of these high-tech companies right at the moment."
 Colgate (CL: Research, Estimates) is one of the stocks Riley mentions. "I like Colgate. Colgate has probably been dragged down by the P&G experience, and clearly, but clearly they've gotten their act together," he said.
"I like the drug stocks," said Riley. "Drug stocks have been damaged very severely in this marketplace. Merck(MRK: Research, Estimates) is down from it's high, in the high 90's, to $54 a share yesterday. And here is a company that obviously is under a lot of pressure due to 'drug pricing issues,' that may be disputed -- but clearly, its long-term growth rate is still is going to be around 13 or 14 percent, and the company is selling at a price-to-earnings ratio that finally makes some sense again."
Despite being a "value investor", Nancy Tengler, chief investment officer at Global Alliance Value Investors, does sees a reason for the appeal of "new economy" companies versus the "old economy" old guard.
Investors, said Tengler, "have the opportunity to buy some of these really exciting companies that are providing the technology business and consumers will use for the next 20 years. If investors have to choose between that and razor blades at the moment, they're choosing the exciting new technology companies. And they probably should be."
"Clearly, however, margins are going to improve based on productivity enhancements driven by technology and the old economy companies are going to be beneficiaries," Tengler said. "At the moment, however, we've seen a number of industries where you're getting double digit earnings growth and nobody cares."
 "We have been in buying EDS (EDS: Research, Estimates), which is the old Electronic Data Systems. We also like Cabletron Systems (CS: Research, Estimates) and Legato (LGTO: Research, Estimates). We were buying Lucent (LU: Research, Estimates) when it took a hit. It was a value stock for a few weeks." However, adds Tengler, "Lucent has run up recently, so I'd take my time on this one."
"The market right now is sort of in a double orbit," said Robert Stovall, market strategist at Prudential Securities. "You've got the 'new age' stocks swirling around, up higher, it looks as though fundamentals don't matter too much for these companies, and then you've got the standard stocks very susceptible to downturns on bad news or even flat news."
"An example of this is Procter & Gamble, which dropped yesterday," he said. "About 70 percent of the volume was made up by institutional investors. The big guys sold off right away and it became dead money, until the stock accumulates more fans, and I think that could very well be repeated with other companies that report similar earnings warnings."
"But I think that investors should participate in both orbits, as it were, and look at some of the good stocks pulled down by P&G's bad news," Stovall said. "Ralston Purina (RAL: Research, Estimates), for instance, in the food industry, or Quaker Oats (OAT: Research, Estimates) -- both companies are selling at modest multiples and if you don't have stocks like that in your portfolio, you should buy a few. That said, however, I think you really have to stay with the stocks you have confidence in, in the 'new age' zone as well."
'Pros' bonus: Hear Robert Stovall, market strategist, Prudential Securities, on investor expectations. Select: [274KB WAV] or [274KB 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 
--Compiled by Tatiana D. Helenius
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