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Stock picks by the pros
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August 28, 2000: 3:55 p.m. ET
VeriSign, Gateway, Nokia, Global Crossing, and Network Appliance rate
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NEW YORK (CNNfn) - Money managers and market analysts took their top picks from the software, telecom, financial, technology, petroleum and semiconductor sectors Monday, mentioning such names as Veritas, EMC, Citigroup, InfoSpace, Apple and Micron.
While gains in tech stocks continued to keep the markets positive in late afternoon trading, recent guests on CNNfn commented on the stocks they are buying and why.
 "It's an exciting time for PC manufacturers. It's strong from the consumer point of view and we expect that to accelerate with back to school and the holiday shopping season," said David Bailey, PC and enterprise hardware analyst, Gerard Klauer Mattison. "Sales have actually been pretty good. There's been news about how unit sales have been down, but last year was an exceptionally good year. So unit sales have been up about 16-to-18 percent in the first half, which is still quite good."
"Apple (AAPL: Research, Estimates) and Gateway (GTW: Research, Estimates) should benefit quite a bit. Dell (DELL: Research, Estimates), as it moves more and more into servers will also benefit. They all concentrate on the consumer segment," Bailey said.
"Gateway is differentiating themselves because of the business strategy, offering investors Gateway Country stocks -- the phone and the web -- and they have Gateway employees at each place so they have a higher level of knowledge and also a better supply of offerings," he said.
"Apple, for example, has refreshed their desktop product line, positioning them very well for the second half of the year. Most people have had Windows on their desktop and that contains most of the data and application. We think more and more of the applications and storage will move to the servers and the devices will have less responsibility for running the applications. So this benefits those vendors that have a clearer movement to client architecture and those that specialize in servers and storage," Bailey said.
Within this category, Bailey said that he likes Network Appliance (NTAP: Research, Estimates) and EMC (EMC: Research, Estimates). "EMC is totally different. They're focused on the corporate sector. They've really built up a very strong franchise. They have great sales, excellent support and the technology leadership for eight years in an extremely fast-growing segment," he noted.
 "I think the biggest risk potentially for the market is inflation, and the return of inflation. And I think, when you look inside their numbers, even though the wage picture could potentially bring on inflation, it has not happened, and that is because of the productivity. And I think it's technology -- the fact that 60 percent of all capital expenditures now by corporations across all industries are toward investments in technology and productivity-enhancing things and efficiency-enhancing things -- that those trends are very much here to stay. So I think the risk of inflation is relatively low here," said Liz Ann Sonders, money manager, Campbell Cowperthwait/US Trust.
"I think investors still have to take a long-term approach. I think that is one of the biggest mistakes that individual investors make -- trying to play a short-term game, whether it is timing around economic reports, Fed meeting, or even specific stories or individual stocks. And I think, you know, if you do take a long-term horizon, maybe now does turn out to be a good entry point, assuming you have a three-to-five-year horizon, which is probably most appropriate for individual investors," she said.
"VeriSign (VRSN: Research, Estimates) is a security company. This is a play on the Internet and just how important the Internet is becoming, particularly to corporations. Every business is going to run itself on the Internet. And you think intuitively of what that means for the demand for storage, the demand for security, outsourcing is going to be sort of a big play. VeriSign, though, is a more aggressive, Nasdaq-type stock. So it is going to have more volatile swings and that's part of the reason why you see the stock down. They also just made a fairly large acquisition and that has put some pressure on the stock," Sonders said.
"I like Veritas Software (VRTS: Research, Estimates), which is storage software. I like EMC (EMC: Research, Estimates). It's a broader storage play. I still like Nokia (NOK: Research, Estimates) here," she added.
"To play sort of a timing game, typically a good time to get into financial services is at a point where you do believe you are close to the end or at the end of a Fed hike cycle. And the Citigroup (C: Research, Estimates) story, you know, is a great financial services conglomerate. They are a great asset-gathering story, and probably the best management team in the business," Sonders said.
"I think JDS Uniphase (JDSU: Research, Estimates) is by far the dominant player. I mean they're almost like a mini-conglomerate in financial services, having the asset gathering and global banking, as well as the investment banking arm of Salomon Smith Barney. All the cylinders are firing here and I'm not going out on a limb to suggest that it's got one of the best management teams of any of the financial services companies out there," she said.
 "It's not a big roaring bull market. It's just a slow but steady climb towards resistance in terms of the Nasdaq. We could get up to 4,400 or 4,600 by the end of the quarter. In terms of the Dow, we're getting closer to resistance and we're in the zone. Maybe we can go up another couple of hundred points," said Richard Suttmeier, chief financial officer, Joseph Stevens.
"If you are a short-term trader you like to see some more gyrations. But certainly from a longer term perspective you want to see the market broaden out, have a very nice looking pattern to it technically so that you are not getting hurt too much in a market that's going to grind higher. It looks like that will continue. My theme is productivity. The Federal Reserve stated that that is a very important point in moving the economy forward. The Fed will allow a stronger growth rate as long as productivity gains remain strong. And I think that's going to be the case," Suttmeier said.
"When you look at the stocks that we're going to talk about, they all have a productivity theme, if you will. In the case of Global Crossing (GBLX: Research, Estimates), they are literally building the highways for e-commerce. Simple as that. CMGI (CMGI: Research, Estimates) is kind of an incubator. And the new-issue calendar is built a bit and these stocks like a CMGI have been annihilated in this market. So if they have enough money to put their name on a stadium in New England, I think they will be able to spin out some B2B companies that will make a lot of sense in the long run," he said.
"InfoSpace (INSP: Research, Estimates), they're the platform provider of the wireless devices -- content and wireless devices, and that will be a huge productivity play moving forward. E-mail is replacing overnight letters. You're going to have approved signatures on e-mails and it's just a booming business, for Mail.com (MAIL: Research, Estimates)," he said.
 "I think that stabilization and stability are concepts in the oil market may have been kissed goodbye to. We think that we are still within a period of extreme volatility. And thus, while we're looking for a downward price correction, I frankly just don't see any reason for that correction to be moderate at all in the context of the moves that we've seen over the last three years. There hasn't been a moderate move out there. And thus, when sentiment changes and we think it's going to change fairly shortly, there's awfully good reason to believe that the next move will be as severe and violent as the preceding three," said Mark Gilman, oil analyst, ING Barings,
"We like Petro-Canada (PCZ: Research, Estimates) a lot. It continues to be probably our favorite name within the sector, 'strong buy' rated, 35 Canadian dollar [roughly US$26.50] target price with some upside room on that. It has almost everything you would ever want in an energy stock including restructuring program, share repurchase and a dominant position in what we believe to be a very attractive emerging base in the Grand Banks area offshore Newfoundland. On the NYSE, we are basically recommending Marathon (MRO: Research, Estimates) on the basis of our belief that there's going to be an explosion in the company's downstream earnings over the course of the next couple of quarters. This company's results are sensitive to falling crude prices on the downstream side, and we look for an absolute earnings blowout from the refining and marketing operations," he said.
Gilman's other stock picks include Philips Petroleum (P: Research, Estimates) and Total Fina (TOT: Research, Estimates).
 "We feel pretty good about the rest of the year, based on the belief that Greenspan is done and he has gotten the economy slowed down to where he needs it, and we're coming into a seasonally strong period. Earnings, for the most part, for the stocks that we like, are -- have been good and we expect them to continue to be good. So, we do believe that we go higher from here," said Robert Zidar, senior analyst, Merrill Lynch Investment Managers.
"I think that people are going to be coming back from vacation, seeing that earnings are pretty good, consolidation is happening in the areas where it's significant and needs to happen. And, if you want growth, you still have to come back to technology," Zidar said.
"Semiconductors present one of the most powerful opportunities right now. There has been some debate about where we are in the cycle, how close we are to the end of it. I think we've still got another good year out of those stocks and a good year-and-a-half to two years in the up part of this cycle. So, we're focused on the leadership companies, the highest quality names. And we think that those stocks are going to continue to rebound from the weakness in July, around the initial downgrade," he said.
"Micron (MU: Research, Estimates) is the world's leading DRAM vendor. I think that under spending on DRAM capacity in '98 and '99 was extremely significant. It's going to come home to roost here in a seasonally stronger fourth-quarter period for computer shipments. I believe that JDS Uniphase (JDSU: Research, Estimates) has perhaps the most important technology base within telecom equipment and it has a lot of market cap. So, if it can continue to develop its technology, and also use its market cap to acquire technologies that it doesn't have, it could end up being a much bigger company than it is right now -- very profitable. And therefore, the stock could continue to perform well. And that's exactly what we expect," Zidar said.
"There's been a lot of controversy about how big the business-to-business market will be, particularly for indirect and direct procurement. Ariba (ARBA: Research, Estimates), we believe, has the most powerful software platform for that kind of commerce. They continue to sign big deals. They continue to grow those numbers that very few companies are able to do," he said. "And we think that, even without getting a piece of the transaction revenue, their software sales are going to be extremely powerful for the next couple of years, at least.
"If we're right on the semiconductor cycle and, particularly on DRAM, then spending to the capital equipment providers like Applied Materials (AMAT: Research, Estimates), is going to continue to be powerful. Applied Materials is clearly the leader. They've got very significant market share in most of the areas in which they play and they're able to make acquisitions to get into the areas that they're not currently in. Their customers are doing well. We think they're going to continue to do well and orders and revenues are going to continue to go up for Applied Materials," Zidar said.
-- compiled by Parija Bhatnagar and Alexandra Twin
* Disclaimer 
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