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Stock picks by the pros
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August 8, 2000: 4:41 p.m. ET
American International Group, General Electric and Morgan Stanley make list
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NEW YORK (CNNfn) - Stock picks on Tuesday came from the financial, technology and oil and gas sectors, including such names as Citigroup, Sybase, and Unocal.
While the Dow gained momentum and the Nasdaq slid by the close of trade, two guests on CNNfn commented on the stocks they are buying, and why.
 "This is the Goldilocks economy," said Paul Rabbitt, the president of Rabbitt Analytics. "We've had a very strong economy. GDP growing in the 5, 5-1/2 percent area. Over the last 30-to-40 years that would result in hyperinflation; it would force the Federal Reserve to raise interest rates substantially. But with productivity so strong and today's numbers ideal, what it means -- as demand increases and companies need to increase output - is that when they bring on a new worker they really make money for doing that because their productivity is so high."
"We love technology. We have about a 42, 43 percent bet going into technology. It's the productivity game. You have to be there," Rabbitt said. "Software looks very interesting to us. Sybase (SYBS: Research, Estimates) is a mid-cap stock about a $2 million market cap with a 17 percent growth rate," he said. "This is a stock that relative to the rest of the software group, which sells at 85 times earnings is a value stock. It's at 26 times earnings. And it's Wall Street consensus earnings estimate for this quarter and the next four quarters just got ratcheted up. It's the equivalent of a positive surprise, but we use revision instead. And it also is a high relative strength stock. It's had a pretty good run here, but I would keep buying."
His other pick is Morgan Stanley (MWD: Research, Estimates). "There are several stocks that look good and we upgraded it principally because of value, believe it or not. In the background momentum has turned to the upside as you will know with the run over the last month or so. We think this is an industry that's just going to get rationalized. It's going to get merged and taken over."
 "Certainly the market will benefit from waning interest rate concerns, which of course, have been causing the market to be very volatile over the last year. And with those concerns waning, investors will be a little bit more inclined to buy. For example, a lot more of the value stocks, the lower P/E ratios, like consumer cyclicals, the paper stocks, the retail stocks, the bank stocks - that type of thing - that will be driving the market as well. But the final point is that rising productivity bodes well for the visibility of earnings. So if people feel comfortable about the earnings outlook, and obviously they feel comfortable that the Fed will be raising rates, that will be the motivation to driving the market this year and also next year," said John Shaughnessy, chief investment officer, Advest.
"American International Group (AIG: Research, Estimates) is a wonderful company - Internet, multinational, financial services insurance company. They're certainly benefiting from the improvement of the economies, particularly in Asia, as well as what's going on here. And we think this stock, in the next 12 months certainly, could be up around $104-to-$105 a share. You get a modest yield, you've got the potential to show earnings growth of 15 percent a year. So those are the factors that we believe are the basis for the stock being attractive," Shaughnessy said.
"With General Electric (GE: Research, Estimates), half of their earnings come from financial services; and again, being a multinational company, you've got improving earnings momentum, plus, you get a modest yield, great management, good prospects. I think GE is approaching its high, but its earning growth is continuing to be quite strong. And that of course is what will be driving the stock going forward. With the bank stocks inclined to perk up, you have got you know Citigroup (C: Research, Estimates) again - a multinational company, great management. You've got multinational investment banking and commercial banking. The valuation is very attractive. You have got a modest, current yield. You have got a good, decent growth rate of say around 15 percent a year. All in all, I think that Citigroup is also well-positioned to benefit from a waning of interest rate concerns, on the part of investors," he said.
"Unocal (UCL: Research, Estimates) is a very cheap oil stock. They have a great balance sheet. They have got great capacity to increase their production of oil and natural gas, and with oil and gas prices being firm, that certainly bodes well for their earnings and cash flow. So I think Unocal is a good proxy, an inexpensive proxy, to benefit from stable to rising oil prices as oil demand rises in Asia and other parts of the world," Shaughnessy said.
--compiled by Parija Bhatnagar and Alexandra Twin
* Disclaimer 
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