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Stock picks by the pros
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March 16, 2000: 1:48 p.m. ET
Varco, Newpark, Sycamore Networks, IBM, and Unisys are among top picks
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NEW YORK (CNNfn) - Technology names headed the short list this Thursday, as managers and analysts discussed their top stock picks, but several cautioned investors to set their sights outside of the hot tech sectors, as "old economy" stocks may be heading for a rebound.
Here are some comments on the stocks that recent guests on CNNfn are
buying - and why:
Ulric Weil, technology analyst, Friedman, Billings, Ramsey & Co., had some advice for those who want to play both sides of the "new economy" vs. "old economy" divide. "If we take safety literally," said Weil, "then we leave off investing in some of the skyrocketing Internet stocks and pick up some stocks like IBM (IBM: Research, Estimates), which by all standards is valued reasonably but is making major efforts to become a real factor in the world of e-commerce, B2B, and the Internet infrastructure, as well as providing service solutions to Internet companies and Internet customers. Other major companies like Unisys (UIS: Research, Estimates) and Hewlett-Packard (HWP: Research, Estimates) would also fit the role, particularly Unisys, which is very cheaply valued relative to what high multiples tech stocks carry these days."
"But I personally believe [value] opportunities can also be found in the B2B sector, the infrastructure sector of the Internet," Weil said. "Web hosting, for example, where find Exodus (EXDS: Research, Estimates), or the application service provider area, where we have a company like Interliant (INIT: Research, Estimates), or the true bandwidth type providers, switch providers like Foundry Networks (FDRY: Research, Estimates), like Sycamore Networks (SCMR: Research, Estimates), like JDS Uniphase (JDSU: Research, Estimates). These stocks are high-quality Internet stocks - 'tier one stocks' are what call them. And they can continue to flourish after this little market interruption is behind us, which may take another two days or three days, until Monday next week. But [the market downtrend] will be over soon. It's not the end [of being able to find opportunity in both 'new' or 'old' economy stocks] -- not yet anyhow."
"A number of the 'old-economy' stocks, and I've cited the financials in recent weeks as an example, are no longer going down in price," said Marshall Acuff, market strategist, Salomon Smith Barney. "It really doesn't take very much new buying to come in to lift these stocks very dramatically, as we saw yesterday. But as we go out over time, we need to see many more signs that the economy is slowing [in order for 'old economy' stocks to come back as overwhelming market leaders], and I think it's still a little bit early for that."
Acuff suggested that IBM is an example of an "old economy" company prepping to establish itself as a strong new economy stock. "I like IBM (IBM: Research, Estimates). We know tech has been in favor, and some would say now tech is going out of favor. But IBM hasn't been in favor, and that's why I like it. I think it's one of the biggest B2B plays one can find, and obviously this is a theme that the markets have become very excited about. But B2B is actually a two- to three-year theme [in terms of widespread acceptance], and I think that fact is going to help IBM quite significantly in the future."
"Investors have to be patient," said Roy Blumberg, portfolio manager, Sheer Asset Management. "You still have to ride the winners at this point, which are usually found in technology. I think you need to be a little bit more defensive in where you are in tech and biotech. But you have to wait until you get that correction and prices stay down. Until then, the money is hot right now and the hot money is going back to many of the same names."
Blumberg suggested Newpark Resources (NR: Research, Estimates) might be a prudent choice for investors waiting out market volatility, on the hunt for bargains. "Energy services is one of the areas we've been with for a while, and we feel this area is not overextended," he said. "And the smaller names in this area have not performed that well so far, even though a recovery in that area is going on. Newpark is one of the names that hasn't had a big move to the upside here. They're in drilling fluids, they're in waste disposal for oil wells, and they also make mats that help people drill in transition areas. And they're focused mostly in the Gulf of Mexico, and that area is just starting to recover now. So here's a smaller name that you can take advantage of. It has not run ahead as fast as some of the other ones in the service industry, but we like this one very much."
Blumberg also likes Varco International(VRC: Research, Estimates) "for all of the same reasons, although Varco is in a slightly different business. They make top drivers, they make drill bits, but it's the same thing. These are the areas that recover later on. First you get the recovery of drilling activity; then you need more equipment and more service related to that; Varco recently had a jump, but it's still very early in the move."
Yesterday's pullback in techs "was very positive for the markets," said Grace Fey, portfolio manager, Frontier Capital Management. "As you know, the markets have been so narrow for probably six months, and if that had continued, I think we would have headed more into a corrective mode. What you're getting right now is just a normal recovery in what is referred to as the old economy stocks, and you're having a very healthy correction in technology."
"I don't believe," said Fey, "that you can just across-the-board invest in the 'old economy' stocks, however. But certain companies, like GE (GE: Research, Estimates) for instance, are being left by the wayside, and yet they are a major participant in the productivity improvements that we are seeing that are benefiting all the tech companies. So I think there have just been some real disparities created, and what you saw yesterday was a recovery in some of those that have very strong fundamentals.
Honeywell (HON: Research, Estimates), another Fey pick, "announced a B2B strategy recently which will probably significantly reduce their overall costs. So I think you need to look at each company individually."
Keep in mind, though, when making selective picks among 'old economy' stocks moving to embrace new markets that "there are some 'old economy' companies that are really still old economy - you're really going to have to differentiate between companies It's not an easy market," Fey conceded.
"I think we'll look back on 2000 as the year to buy pharmaceuticals," said Phil Dow, stock market strategist, Dain Rauscher Wessels. "There are concerns coming out of Washington with regard to Medicare/Medicaid reimbursement. Those issues aren't going to go away tomorrow. But I think if you buy this year, two years from now you're going to be happy. Another real value is in the financial sector where you've got P/Es much lower than growth rates at this point in time. I think you've got very attractive businesses that have been delivering on the financial guide post side. We love Citigroup (C: Research, Estimates). We like MBNA (KRB: Research, Estimates). And, if you like technology, Silicon Valley Bancshares (SIVB: Research, Estimates) is a great place to be. We'd say it's a good day to buy financials today."
'Pros' bonus:
"But in the mid-40s, we think this thing could go to 85 in the coming year".
Find out what stock Phil Dow, stock market strategist, Dain Rauscher Wessels refers to, by selecting: [174KB WAV} or [174KB 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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