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Stock picks by the pros
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August 7, 2000: 12:54 p.m. ET
About.com, Beckman Coulter, Texas Instruments, Microsoft make list
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NEW YORK (CNNfn) - Technology, Net, insurance, and airlines stocks were the favorites of portfolio managers and sector analysts Monday, including such names as Southwest Airlines, Cullen/Frost, InterTan Inc., Motorola, Dell, and Compaq Computer.
While the markets took off on regained investor confidence in tech stocks, recent guests on CNNfn commented on the stocks they were buying, and why.
 "I guess the big issue is whether you can sustain profit growth, and everybody's looking at certain factors that will influence the ability for companies to report -- well, for above consensus expectations -- a good report. I think commodity prices, rising interest rates, are having a lagged negative effect on some earnings of major leading corporations. It's not impacting this quarter, but probably the third and the fourth quarter. So you're going to have some diminishing expectations of profit growth, which at these valuation levels could have a somewhat negative impact on price levels," said Jeff Davis, chief investment strategist, State Street Global Advisors.
"Well, I like some of the names that are offshore right now," Davis said. "Two companies: Hong Kong and Shanghai Bank - HSBC Holdings (HBC: Research, Estimates), it's an ADR [American depositary receipt] here. And it has gone a long way in establishing its brand originally out of Hong Kong and Asia. It's doing a very good job in Europe, and it's poised for growth in European integration as well as establishing itself nicely here in the United States. I think it's still well-positioned for a longer-term investor.
"You know, when you think there is going to be a lot of volatility in telecoms and technology, and you're looking for another home, you know financial services kind of run out," he continued. "We've certainly played REITs as more of a defensive play, and gosh, that's been very strong this year. It's hard to imagine a much more out of real estate investment trust. We're still overweight to the energy sector. But you're also looking at the other side of the coin, which is air transportation. Southwest Airlines (LUV: Research, Estimates) is our pick there. If energy prices become more sanguine, Southwest Air is probably the beneficiary. We were just seeing a report out from British Airways today that says that you can still get profits out of airlines, and if energy prices backed off, the profits will expand."
 "I think even the most skeptical people about the productivity enhancements due to technology have been totally shocked by how it's played out in our economy," said Dan Veru, portfolio manager, Palisade Capital Management.
"We need to do a little bit more work at these levels. The Nasdaq is still in its corrective process. The S&P and the Dow, I think, have made their bottoms; and will probably work their way higher going towards the end of the year.
"It's radical to pick a dot.com, but About.com (BOUT: Research, Estimates) is one of the companies -- the No. 7 Web property of all Web properties -- that will actually show a profit in 2001. They have a very strong balance sheet. They've exceeded my estimates for the last five quarters," Veru said. "Cullen/Frost (CFR: Research, Estimates): they're a regional bank based in Texas, a very high-quality name. If the banks are going to work, typically the money centers will work first and then the regionals will follow. This company has done an exemplary job of growing their loan portfolio very judiciously without taking on unusual amounts of risk. The quality of the portfolio has still stayed intact.
"Everest Re insurance (RE: Research, Estimates), they're a major P&C re-insurer. Along with our thesis on the banks, we think the insurance companies - in particular, the property and casualty names - they've been doing well," Veru said. "Their earnings very strong. Beckman Coulter (BE: Research, Estimates), they just reported outstanding earnings. This is a health care company that provides lab systems and equipment to hospitals and pharmaceutical companies. Just reported an outstanding quarter. They beat our estimates by several pennies.
"InterTAN Inc. (ITN: Research, Estimates) stands for 'International Tandy,'" Veru continued. "This is RadioShack (RSH: Research, Estimates) outside the United States, in particular, Canada, and in Australia. Australia is very interesting to us because of the Olympics. This company just reported low double-digit same-store comps. It's the fourth month in a row that they've done so. The stock is very inexpensive on a multiple basis, and we think there's some real catalyst to get the stock going."
 "I think there is three hot buttons, if you will, within technology. One of them is the growth in wireless. Another one is the semiconductor cycle, which has been very strong. People are worrying whether we've reached a peak there, yet. And then third would be corporate PC demand, which has been very weak lately. Investors are wondering -- is this is a secular kind of long-term downturn, or is this a blip on the radar screen until Windows 2000 demand picks up later in the year? So those are the hot buttons and we think the stocks are going to trade sideways until we get some clarification." Art Russel, technology analyst, Edward Jones.
"Our analysts don't follow semiconductor stocks," Russel noted. "But we are still very bullish that we're still in the early phases of this cycle here. In some instances, we had companies that ordered too much equipment before they really needed it. But you know unlike the past where it was the PC industry that kind of fueled demand for a lot of the chips, we've got so many more drivers now between these wireless handsets and these hand-held computers, PCs and all these consumer electronic devices - all of which are fueled by new powerful semiconductors. We still think we're very early in the cycle. Our two favorites in that category are Texas Instruments (TXN: Research, Estimates) and Motorola (MOT: Research, Estimates).
"I think right now we're also seeing a little bit of a bubble in PC demand as companies survived Y2K. They're not really eager to spend money; and they're still evaluating the Windows 2000 product," Russel said. "We think that is going to pick up later in the year as companies finish that evaluation process, and Microsoft (MSFT: Research, Estimates) delivers the rest of the pieces of the puzzle for the Windows 2000 family. So companies like Dell Computer (DELL: Research, Estimates), Compaq Computer (CPQ: Research, Estimates) should do very well, as well as Microsoft (MSFT: Research, Estimates), which people have beaten up here recently.
"I think that there's a lot of investor concerns out there [about Microsoft], and I think they've been overblown and that's reflected in a very cheap stock price at current levels. The stock is currently trading at a P/E of about mid-30s on forward earnings, one of the cheapest valuation levels since 1996," he said. "People are worrying about whether Windows 2000 is going to be a success, about corporate PC demand, as well as the lawsuit issues, both here and in the U.K. So it is kind of interesting to see how the stock has been beaten up here. But I think, as we get more data points to see that corporate PC demand is still fairly healthy, companies are going to be rolling out Windows 2000. And as we move forward and get some of these issues off of the table, I see a lot of upside in the stock."
-- compiled by Parija Bhatnagar
* Disclaimer 
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