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Stock picks by the pros
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August 17, 2000: 3:00 p.m. ET
Hewlett-Packard, The Limited, IBM, Computer Associates win mention
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NEW YORK (CNNfn) - Market strategists and stock analysts chose from the health care, retail, technology, oil and telecommunications sectors for their top stock picks Thursday. Motorola, Office Depot, St. Jude, Men's Wearhouse and BP Amoco were among their favorites.
As the markets lifted in late afternoon trading, recent guests on CNNfn commented on the stocks they are buying, and why.
 "I think there is some uncertainty in the marketplace, and so to buy the whole retail group, I don't think that is the right thing. But I think you have to be selective and pick the good retailers, the ones that where there is confidence that they will be able to execute. Where they're changing their business to allow them to perform in this marketplace," said Marcia Aaron, retail analyst, Deutsche Banc Alex Brown.
"Our favorite's The Limited (LTD: Research, Estimates). We think that they are doing a great job of turning their brands around. They've got some of the best names out there: Express and young womens are clearly standouts. They performed far better than anybody else during the second quarter. You also have two terrific brands, through their Intimate Brands (IBI: Research, Estimates) division -- Victoria's Secret and Bath & Body Works. This is a company that's probably going to grow faster that the industry average, and it's also still only trading about 13 times next year's number.
"Men's Wearhouse (MENS: Research, Estimates) had a great quarter. And if you look at the overall specialty apparel category, earnings were down about 6 percent and yet Men's Wearhouse was up 23 percent. And I think they do a lot of things to drive their business, with their merchandising and their marketing. They're really aggressive at doing that. And not many other retailers are that aggressive about driving people to their stores. It's trading only at about 12 times next year's numbers, for a company that is growing in the low- to mid-20 percent. That seems like a bargain to us.
Other picks include AnnTaylor (ANN: Research, Estimates) and American Eagle (AEOS: Research, Estimates).
 It feels like we've had about 10 positive sessions out of 13 for the Dow and a lot of talk is that we need to slow down a little bit. We got a little ahead of ourselves in the short term. That's causing some of the pressure and the Nasdaq has got its own list of worries in tech and telecom and earnings growth going forward," said Art Hogan, chief market analyst, Jefferies & Company. "But if I had to venture a guess I think we'll start trending higher up until the Fed meeting on Tuesday and then really take off. Unfortunately, the volumes remain anemic here so there's not a whole lot of action going on either way."
He said that he likes AOL (AOL: Research, Estimates). "They've got a large merger that will close in the end of October and the first part of November. A lot of people don't have a good handle on how to value the company now. It's really been sitting on its 52-week low for most of the year. They had a small move from 50 to 55 this week, but they are clearly undervalued there and clearly one of the best-known names in the space.
Other picks include Yahoo! (YHOO: Research, Estimates) and GlobeSpan (GSPN: Research, Estimates).
 "The time to be looking to invest is when you're most afraid to do so. The time to be looking at individual companies is when everything looks bleakest. Verizon is not going out of business. Verizon (VZ: Research, Estimates) owns wireless in this country -- when you put together Bell Atlantic and GTE, they are clearly the dominant player. Verizon has sold off, what, 30, 35 percent in two or three weeks. You know, it has taken a hit already. Look at the fundamentals. Look at the reality of that, the market has already been reacting to the strike, to the sell-off in telecoms. This is a time to start taking a serious look for that next year, 18 months," said Douglas Altabef, managing director, Matrix Asset Advisors.
"Computer Associates (CA: Research, Estimates) has been wildly beaten up this year, but they have telegraphed very recently their intent to increase shareholder value, and investors should take a cue from that," Altabef noted. "They have a terrific business. They're smart guys. They have some of the things that are very, very cutting edge; and if they spin those off, they can do some, you know, accounting things that will create some more shareholder value, a la a 3Com-Palm type of situation.
"Motorola (MOT: Research, Estimates) is very cheap, compared to where it was five months ago. They are right up there technologically. Business has never been better. The stock has sold off about 40 percent. They are very cheap compared to Nokia, to Ericsson, to Lucent Technologies. They're a good stock to look at right now," he continued.
"Office Depot (ODP: Research, Estimates) is one of the leading e-tailers out there today -- probably about 800 million in online sales, and they're about at break-even on the Internet, which is saying something. I mean, that's a major achievement. At a 9 P/E, in a negative environment, it's worth a look," Altabef said.
"St. Jude (STJ: Research, Estimates), which has been a very volatile stock, had a nice runup recently and now is edging back there. They're a specialist in heart valves and defibrillators and things related to cardiac. We think they've got some great cutting-edge technology and they're worth a look," he said.
 "I think the integrated oils are a tremendous value at this point. Over the past year, despite having record profits, they have actually underperformed the S&P 500 by about 15 percent. So we wouldn't be surprised to see the group outperform the S&P 500 by 20 percent from here going forward over the next 12 months. We think that the profits are going to be strong in refining, as well as in the upstream production. The best values, I think, are Conoco (COCB: Research, Estimates) and Phillips Petroleum (P: Research, Estimates) right now for people that can handle a little bit of risk. And for real conservative investors, BP Amoco (BPA: Research, Estimates), you know, looks like a good long-term growth play," said Ed Maran, oil analyst at A.G. Edwards.
"Their smaller size gives them less diversification, less geographic spread. So you have a little bit more risk with them. Those companies are about $16 billion market cap companies, whereas BP Amoco is a $200 billion company. So you can compare BP Amoco to a GE in terms of its size and diversification," Maran said.
"Texaco (TX: Research, Estimates) has a high sensitivity to the price of oil. And that is very favorable in this environment. And through their Caltech subsidiary, they're also very exposed to Asian refining and marketing which has had a tremendous upturn over the past three months, which is going give them good positive comparisons, compared to last quarter," he said.
"Marathon Financial (MFCV: Research, Estimates) has a new CEO. They've just shifted out of some assets in Russia trading there with Shell for some Gulf of Mexico and North Sea assets that are going to give them a good strong production growth profile. And they have a heavy exposure to United States natural gas. And the natural gas market is at least as hot as the oil market," Maran noted.
 "I think it was a solid quarter for Hewlett-Packard (HWP: Research, Estimates). I think that there's been a lot of questions surrounding the percent upside from what consensus estimates were at 85 cents. But I found a good nickel coming from better revenue growth than I had anticipated and better gross margin expansions. It went up about 100 basis points from their prior quarter. So the key metrics that most analysts were focusing on was that they hit that 15 percent revenue growth target that they had established, kind of line on the side, on what was considered a tougher compare for this quarter. And also, that they improved profitability in their computer-systems business. And they did that a quarter earlier than expected. So I'd say that net-net it wasn't a blow out, but it was a very good quarter and one that showed progress," said Megan Graham-Hackett, technology analyst at the S&P Equity Group.
"HP has been growing at a substantial multiple to the overall market in PCs and has done so for a while. They've seen terrific growth in home PCs, far exceeding what the U.S. retail space has witnessed. Their guidance going forward, they didn't really change their 15 percent revenue growth for top line -- did reference the fact that components supply issues could be a limiting factor. They're managing through it, so it shouldn't be that large of a factor, but that the upside above 15 percent might be limited by that factor. Overall, from all the companies we've talked to, PC demand is very healthy. They might have some substantial upside if Windows 2000 winds up being a killer app and we have a huge upgrade cycle," she said.
"Right now, based on our system, we have an 'accumulate' recommendation, a 4 star, on HP. We have a 'buy' recommendation on Sun Microsystems (SUNW: Research, Estimates) and IBM (IBM: Research, Estimates)," Graham-Hackett said.
--compiled by Lucy Banduci and Alexandra Twin
* Disclaimer 
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