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Stock picks by the pros
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April 4, 2000: 7:17 p.m. ET
Procter & Gamble, Gillette, AOL, Disney, Oracle, Dell, draw praise
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NEW YORK (CNNfn) - The media bigwigs are looking very attractive, with strong cash flows and proven business models, industry analysts say. And semiconductor stocks get a thumbs-up.
Classic consumer stocks were still in vogue. Technology and drug stocks held on to their glamour Tuesday despite the beating many took in Nasdaq trading, as money managers and analysts included them among their top picks.
A financial services firm and a pharmaceutical company also were mentioned.
Here are some comments on the stocks that recent guests on CNNfn are buying, and why.
Alan Skrainka, chief marketing strategist at Edward Jones, likes financial stocks. "They're discounting not only higher rates, but a recession in some cases." He also likes the drug stocks that have been "beaten down."
 In addition, "We like the great consumer names like Gillette and Coca-Cola who are going to see an improvement in their business overseas."
He also likes Procter & Gamble, which saw a sharp drop today. "We have it on our buy list. We think it's a great opportunity. When a stock falls by that much, the pressure is intense for the management to fix the business or someone's going to step in and fix it for them.
In terms of technology stocks generally, he says "if you're underweight in technology, let's say by 20%, then you should buy the leading companies with a track record of growth."
Chris Dixon, media analyst at PaineWebber, said media stocks, "especially of the large companies, are superbly positioned," with strong cash flows and strong business models, to be attractive stock picks.
"The reality is that the Internet has the potential to be a new mass medium, and it's very clear that *AOL (AOL: Research, Estimates) and Time Warner (TWX: Research, Estimates) are going to define how that business model evolves. We think it's a terrific place to be investing."
 "The big cap stocks have done very well," Dixon said. "The three big players, Walt Disney (DIS: Research, Estimates), Time Warner-AOL, and of course Viacom (VIA: Research, Estimates) and CBS (CBS: Research, Estimates), are up over 30 percent during the first quarter. That's going to continue, given their core strength of advertising and very stable cash flows."
"In technology, I think the semiconductors, semiconductor equipment makers, and the companies that sell you electronic gear look attractive," said Larry Wachtel, market analyst at Prudential Securities.
"I like ATML (ATML: Research, Estimates). If I had to buy one semiconductor stock, it would be ATML," Wachtel said. "The company services the entire spectrum of wireless and cellphone areas with the chips.
"I also like Tandy (TAN: Research, Estimates). They sell all the electronic gear that is so exciting on the dip."
"For investors that don't have positions in Microsoft (MSFT: Research, Estimates), that have been standing on the sidelines waiting to take advantage of a break in the price," said Jonathan Cohen, technology analyst at Wit Soundview, "this [legal decision against Microsoft] may be that opportunity. This may be that break. At the same time," Cohen cautioned, "we're not recommending that investors pile in because there is clearly litigation risk here that's not going away anytime soon. The appeals process could very easily take two years. That could work in Microsoft's favor, but at the same time, the risk is not going away."
But, Cohen added, yesterday's Nasdaq sell-off did create buying opportunities among several tech stocks. "We're looking at names like *America Online (AOL: Research, Estimates), Priceline (PCLN: Research, Estimates)," Cohen said, "really the blue chips of the Internet space which sold off dramatically from their highs. We're looking at Web-hosting companies, for example, like Verio (VRIO: Research, Estimates), which is off now more than 30 or 35 percent from its high easily, and which is a great company, a great space with great prospects. This is all valuation related. None of this is fundamental, and we would be selective buyers at these prices of a number of names."
 "We like stocks that are out of favor," said Jim Waggoner, market and technology strategist at Sands Brothers & Co. "SciQuest (SQST: Research, Estimates), for instance, is off 85 percent in the last 34 days or so. This is a company that's selling at less than two times revenue. People said that B2B was selling at a high multiple of revenues. Well, here's a company in the health- care space, the life sciences space, and the vertical B2B area, selling at less than two times 2001 revenue. That's pretty cheap, that's less than the IPO price. And the company is growing very, very rapidly."
 "We've also," Waggoner said, "been big fans of Commerce One (CMRC: Research, Estimates) and Ariba (ARBA: Research, Estimates). We still very much like those stocks. Both have been down between 52 and 57 percent. At present, we are seeing a real buying opportunity in those two stocks. Rotation is a certainly a danger," Waggoner admitted, "but you have to use it as your friend."
"We're most comfortable right now with energy and financial stocks," said Vince Farrell, chairman and chief investment officer of Spears Benzak Salomon & Farrell. "I would have added pharmaceuticals a couple of weeks ago, but that sector has really come on very strong. I think American Home Products (AHP: Research, Estimates) is still a very reasonably priced stock in the pharmaceutical sector. If you can buy a 'pharma' company with good earnings prospects, which the industry generally has, at a market multiple, you're probably going to be OK. They've got issues, which I've talked about before, namely, the phen-fen litigation. But they also have resources to deal with that. So, I think it looks very attractive. Otherwise, I think the 'pharma' group has already had a very nice move."
 "The energy market," Farrell said, "is trading as though oil is going to rest at $17 or $18 a barrel. And clearly, I think it's going much higher. I think the domestic natural gas companies are more attractive than the big oil companies, however. In the finance sector, even though the brokers have moved quite nicely, I prefer regional banks, insurance companies and finance companies. One name I'd pick which is controversial is Fannie Mae (FNM: Research, Estimates); it still looks very cheap. They have a lot of shots coming at them, including some from the Treasury, because they have this implied government guarantee. But right now, you could buy Fannie Mae at a price- to-earnings multiple that is below its growth rate."
"Microsoft had a big part in yesterday's Nasdaq decline," said David Powers, senior technology analyst at Edward Jones. "But I think the bigger picture is really that we saw a massive flight to quality, and that was illustrated by the performance of the Dow versus that of the Nasdaq. We saw money being shifted out of the more speculative names, and into the more established companies that have proven track records."
Lucent (LU: Research, Estimates) could, despite being a tech stock, be considered a value stock, Powers said. "I think it's important that investors look at technology stocks right now that have been around for some time, that have a proven track record of growing revenue and earnings, and have an established track record to look at. And within technology, Lucent certainly fits that bill. Yes, the company has had some bad news. But if you noticed yesterday, during this massive sell-off in the Nasdaq, Lucent was just down slightly. They have some new products on the market, and I think the second half of the year is going to be very strong for them."
'Pros' bonus: Hear David Powers, senior technology analyst at Edward Jones,
on Motorola (MOT: Research, Estimates).
Select: [172KB WAV] or [172KB AIFF].
Dell Computer (DELL: Research, Estimates) is another Powers favorite. "The PC manufacturers have been out of favor for quite some time right now, and especially in 1999, and they kind of missed out on the recent rallies we've seen in technology stocks. But with the introduction of Windows 2000 and PC prices starting to stabilize, I think those stocks make a lot of sense, especially given the attractive valuation levels."
"Compaq (CPQ: Research, Estimates) is the same story as Dell in terms of the PC market starting to turn around," Powers said. "Clearly, this is a company that has struggled for quite some time, but on a valuation basis, it's very attractive. There is probably not a lot of downside risk from here. In turbulent times, it really pays off to stick with quality."
"I think the Microsoft (MSFT: Research, Estimates) should rebound today," said Timothy Ghriskey, senior equity portfolio manager at Dreyfus Corp. "Obviously, we saw a big downdraft yesterday. But Judge Jackson's comments were very measured on Microsoft. And I think that was actually a positive surprise to the markets. So, I think we'll [see] the stock trade higher today."
 However, Ghriskey said, "The Internet is really the future, we believe, and there are many companies currently better positioned for the Internet than Microsoft. And there are more interesting opportunities there. Oracle (ORCL: Research, Estimates), for instance, is really well positioned for the Internet and Internet software market. I think it's really in a great position here. Its multiple now is well above that of Microsoft, so its valuation is high. But we think it's so well positioned that it's going to continue to gain market share."
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, Parija Bhatnagar and Alexandra Twin
*AOL is merging with Time Warner, which is CNNfn's parent company. 
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