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Stock picks by the pros
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August 15, 2000: 5:23 p.m. ET
Exxon, Pfizer, SafeGuard Scientifics, Oracle and Home Depot won mention
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NEW YORK (CNNfn) - Market strategists and analysts chose stocks in the oil, retail, technology, financial, and insurance sectors for their top picks Tuesday. Williams Companies, Citigroup, Conexant Systems, and Applied Materials were among the companies that won favorable mention.
While the markets closed mostly lower on Tuesday, recent guests on CNNfn commented on the stocks they are buying, and why.
 When picking a winning stock, Peter Doyle of Kinetics Asset Management said that his priority "first and foremost is capital. Do they have enough money to execute their business strategy over the next several years without having to access the capital markets, because there are going to be times when capital markets are unfriendly. And if you run up against a wall where you can't raise money, it means you might be out of business. So we look at companies that have financial strength. Then we look at companies that are looking to displace the current players."
"One example we own in the fund is a company called RCN Corp. (RCNC: Research, Estimates). We believe they're going to provide a low-cost distribution of data in the future. And we think it's going to be a very big stock."
His second pick is SafeGuard Scientifics (SFE: Research, Estimates). "It has about a 35-year history of investing in high technology very successfully. It is a very profitable company. Literally has billions of dollars of cash and marketing securities on its balance sheet, so it's well funded and is going to have staying power. Ironically, the volatility or the negative downtrend in technology stocks makes this business more attractive because you are able to invest in a company at lower prices. It also provides a way of getting in on the ground floor on IPOs before the rest of the world. Safeguard spins off its companies and it allows its current shareholders to participate in those spinoffs."
 "I think we agree with the consensus that the Fed will increase interest rates. That's been a significant head-wind against this market," said Steve Young, the director of asset allocation and senior market strategist at Bank of America Capital Management. "We think interest rates have peaked. So a lot of that headwind will be diminished and now really the big challenge will be the earnings deceleration -- can the market overcome that?"
"For the balance of this year, we'll continue to focus on those stocks that can provide some earnings momentum because that's becoming scarcer and scarcer as well as companies that just provide earnings stability with no surprises on the downside."
"Utilities is a sector that's not often mentioned for performance, but it is the strongest sector performing this year, up 30 percent. There's a stock there, FPL Group (FPL: Research, Estimates), that provides attractive opportunities. It is now the largest utility in the nation, generates great cash flow from the utility side, but also has an unregulated business growing 30 percent. There the entire company can grow better than 10 percent for the foreseeable future."
Other picks include Pfizer (PFE: Research, Estimates) and Oracle (ORCL: Research, Estimates).
 "In the international oils there are really two companies that I own. Exxon (XOM: Research, Estimates) No. 1, BP Amoco (BPA: Research, Estimates) being the other one. But in addition to that, you really have to look at all the different sectors in the oil sector, pipeline companies, equipment drillers -- they're all going to probably benefit, although not a lot. These companies are posting better relative stock price performance and now earnings performance. I think they're going to do a little bit better, but don't make a big bet on energy, just a little bit overweight energy," said Hugh Johnson, chief investment officer of First Albany.
"The oil stock at the top of the list, it would be Exxon," Johnson observed. "And then if we go beyond that, one that's hardly even a pipeline company anymore, but it's been performing very well is Williams Cos. (WMB: Research, Estimates). Everyone should look at that one."
He also favors the finance sector: "Financial services: Citigroup (C: Research, Estimates); banks: Bank of New York (BK: Research, Estimates); insurance: AIG (AIG: Research, Estimates), AFLAC (AFL: Research, Estimates) and Marsh & McLennan (MMC: Research, Estimates)."
His tech picks are large caps: Cisco Systems (CSCO: Research, Estimates), Sun (SUNW: Research, Estimates), Oracle (ORCL: Research, Estimates) and EMC (EMC: Research, Estimates). "I think those are the four names that you'd have to have as the core of your technology holdings. If you go beyond that, don't go too far into, say, the Internet area, but particularly the business-to-consumer area. Stay with large-cap tech."
 "In this volatile market, the best procedure is to buy on dips. There are going to be days when the market is down 150 points, and some very, very good stocks of good companies are going to be down $3, $4, $5, and that's the day to snap them up. Stocks are expensive, but they're expensive for a good reason. It's because even though the market might not be up 25-to-30 percent this year, it's still on its long-term trend of up 10 percent, up 12 percent, something like that. And you're not going to get that in cash and you're not going to get that in bonds," said Alan Hoffman of Value Line Asset Management.
"I would buy good retailers -- especially on dips," Hoffman said. "I like Target (TGT: Research, Estimates). I like Kohl's (KSS: Research, Estimates). I'd stay away from the department stores. I like Home Depot (HD: Research, Estimates). You know, there are a lot of things to look at. "[Monday's stock performance] tells me that investors are looking for good earnings from Home Depot, and I think the good earnings can come from a couple of different places. One is that with interest rates high, although down from recent highs, more and more people are going to Home Depot for adding on a rec room or a kitchen or something like that, as opposed to buying a new house. And that's good for the contractor market, that's good for the do-it-yourself market, and it's always good for Home Depot," he said.
Regarding technology stocks, Hoffman said, "Prices are high, but I'd still go -- especially on dips -- to the blue chip names: Applied Materials (AMAT: Research, Estimates), Intel (INTC: Research, Estimates), Microsoft (MSFT: Research, Estimates). I think there are some wonderful bargains in Techland."
 "I think, first of all, the semiconductor sector had been oversold. This was one area, the technology market that just did not perform well over the past few months. There is a lot of concern with investors whether or not this current upturn in the semiconductor industry has peaked. There is a huge debate going on whether or not we still have any growth left. And, our view has also been that, yes, we believe this is more of a seasonal slowdown than any prolonged downturn for the industry. So we think there is some legs left in the semiconductor cycle. And as a result, we would be a buyer of some of these stocks," said David Powers, senior technology analyst with Edward Jones.
"Texas Instruments (TXN: Research, Estimates) is a stock that we just added to our model portfolio at Edward Jones," Powers said. "It is a leading supplier of digital signal processors. These are types of chips that are found in digital cell phones. In fact, two out of every three digital cell phones has a DSP chip in it. Now this is an area that recently sold off recently, the whole wireless sector in light of Nokia's earnings warning for the next quarter. And Texas Instruments got dragged down in that sell-off. However we believe their business is quite strong. We think the DSP market is going to continue to grow faster than the overall semiconductor industry. And since the stock pulled back, that provided us a very attractive entry point."
"Applied Materials (AMAT: Research, Estimates) really had an outstanding quarter," he continued. "And in fact more importantly going forward, the CEO was very bullish on the conference call with analysts, in fact he used the quote 'a decade of opportunity ahead for them.' They are the gorilla in the semiconductor equipment space. The more chips are sold, the more equipment you need to make them. And since we believe there is still some years left in this upturn, certainly they are going to benefit from that strong growth."
"Conexant Systems (CNXT: Research, Estimates) is a somewhat smaller company in the chip sector, but certainly it's one of the largest suppliers of chips that a communications equipment end market and it has really been beaten up. If you look at it relative to its 52-week high, there are some concerns about growth in the wireless market in Korea. The government over there banned handset subsidies. And as a result, companies like Qualcomm and Conexant, who supply chips for the CDMA market in Korea have seen their stocks fall dramatically from their highs. We think it has been overdone. This is a very diversified company. Not only do they have products for wireless chips, but they also make chips for cable modems, DSL modems, and a variety of other communications devices. The stock is very cheap on a valuation basis, especially relative to its peers in the industry," Powers said.
--compiled by Lucy Banduci and Alexandra Twin
* Disclaimer 
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