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Stock picks by the pros
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August 29, 2000: 3:52 p.m. ET
Intel, Target, Nokia, Pfizer, Aptar, Chase Manhattan, Oracle win mention
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NEW YORK (CNNfn) - Markets analysts and portfolio managers made their top stock picks Tuesday from the technology, telecom, financial, retail and pharmaceutical sectors, which featured such names as i2 Technologies, Sanmina, Wells Fargo, WorldCom, Staples and Sun Microsystems.
While the markets continued to move uncertainly in early afternoon trading, recent guests on CNNfn commented on the stocks they are buying and why.
 "September is historically the worse month going back over the past couple of decades," said market strategist Frank Capiello, president of McCullough Andrews & Capiello. "However, in the past 10 years, it's been October where there's been a problem. So curiously -- while I'm bullish -- I know we're entering a very dangerous area in September, and even more dangerous in October. But I think this year may be the exception. We've already taken a beating in the market earlier in the year. So the market may be surprised.
"I like retail because it's beaten up," he said. "Target (TGT: Research, Estimates) is one of my favorite stocks now. It's a 15 percent grower selling at 15 times earnings. The second would be WorldCom (WCOM: Research, Estimates). It's at 15 times earnings and probably the same growth rate."
 "We obviously monitor consumer confidence as an indicator of how consumers are feeling about the broader economy, but we also look at a number of other indicators," said Matthew Fassler, retail analyst, Goldman Sachs.
"We look at housing turnover. We look at growth and real wages per hour really as the fundamental driver of consumers` spending trends, and most of the numbers that we look at -- following really a couple of years of extremely strong leading indicators, extremely strong consumer spending -- most of these numbers have lost a little bit of ground," he said. "In fact, we've seen growth in consumer spending moderate from close to a 6 percent level to closer to a 4-1/2 or 5 percent level, in recent months. And our view is that while we're unlikely to decelerate dramatically from this level, we're unlikely to see a real bounce back in the very near-term. As a result we remain pretty guarded on the retail stocks, as we have been for about four months now.
"The two names I'm recommending are Staples (SPLS: Research, Estimates) and School Specialty (SCHS: Research, Estimates). They both happen to be appropriate for the current back-to-school season," he said.
"Staples has been under significant pressure. Part of that reflects very aggressive spending on the company's Internet venture," he said. "The company's indicated that Internet losses are likely to moderate over the next several quarters. We saw some evidence of that in the second quarter and I think that will lead to improving earnings momentum, and consequently improving investor sentiment toward the stock.
"School Specialty is a smaller company," Fassler said. "It's the largest distributor of educational products to schools. And simply put, this is a company with a terrific competitive position and a very strong management team that I think is very well positioned for growth over the next several years."
 "We've actually had a bit of a stealth rally here in August. As many people have been away for vacation, the market's done fairly well in here. We still are pretty favorably disposed toward the technology area, and as we go into the Christmas season we'll see probably more activity there," said Larry Seibert, portfolio manager, Barrett Associates.
"Most of the stocks as pure Internet plays have not done well this year. Obviously they had a very good first quarter, a very bad second quarter, and they've kind of marked time to wander up a little bit in the third quarter. We are very favorably disposed toward the Internet infrastructure place, companies like Cisco and Intel and some of the telecom players. Looking toward the Christmas season, we think we'll see some very positive trends in electronics, cameras, digital cameras, handheld devices," Seibert said.
"We would buy Intel (INTC: Research, Estimates) here, Cisco (CSCO: Research, Estimates), Nokia (NOK: Research, Estimates), also a little company called Sanmina (SANM: Research, Estimates) that makes equipment for other companies. We would love to buy EMC, SUN, and Oracle, but would really wait," he said.
 "We're looking at a pretty favorable environment for bank stocks, and financials in general, over the next three-to-six months. But what I would say is that there's still a little bit of an overhang in terms of the commercial banking sector, due to credit quality concerns. So that's going to weigh heavily on the banks. But we could see growth in some of the other areas. Brokerage continues to be very strong," said Andrew Collins, banking & brokerage analyst, ING Barings.
"I think you need to be selective in terms of the commercial banks. We've done a lot of studies in terms of credit quality in trying to figure out which ones really are at risk and which ones aren't. And I think that some of them are overly discounted at this point, like Chase Manhattan, Bank of America and Wells Fargo," Collins said.
"Bank of America (BAC: Research, Estimates) recently announced a pretty significant restructuring, and that just goes to show you they have a lot of room to cut in terms of expenses, so that could drive EPS growth throughout this year and the next. In addition, they really are adopting the Internet quite aggressively. They've got economies of scale across the board, and the stock is very cheap -- it's only at 9.1 times next year's earnings, which is the lowest amongst the top 10 banks we follow," he said.
"Chase Manhattan (CMB: Research, Estimates) -- we like that one because it's more or less an investment bank at this point. It's not really a commercial bank. And so the market continues to discount it, as if it was a commercial bank. Chase sells 11.4 times next year's earnings. So I think there's a lot of opportunity over the next year to make money in Chase," Collins said.
"Wells Fargo (WFC: Research, Estimates) -- that one has got the best Internet offering in banking, unquestionably. Twenty-five percent of their households are on the Internet currently, and the people are very active out there in terms of using the Internet. In addition, they really have grown their presence in terms of commercial banking quite aggressively. They have a small business portal now, which is really quite positive. And they're in all the high-growth market places," he said.
 "The tone, I think, for the next couple of months, quite frankly, is going to be set with all those economic numbers that we get this week, particularly on Friday. We'll find out a little bit more about whether we have to worry about Fed policy, not in October, but in November. And I think the outcome is going to be more of the same, sort of a trendless, very volatile market, with a slight upward bias -- not a bad market, but dull, quite frankly. And dull, actually, is very healthy," said Hugh Johnson, chief investment officer, First Albany.
"Buy technology," Johnson asserted. "You go with what the market is giving you or what's working. Technology is working, large companies are working, mid-size companies to some extent, but not small quite yet. And the next thing is growth companies you buy. So you buy technology, you overweight technology, but don't make a bid -- big bet on technology; not 50 percent of your portfolio, something like 30 percent of your portfolio. Stocks like Cisco (CSCO: Research, Estimates), Sun Microsystems (SUNW: Research, Estimates), Oracle (ORCL: Research, Estimates), EMC (EMC: Research, Estimates), are good technology companies.
"The market is telling you to buy the energy stocks, a positive relative performance there. And my worry, of course, is on the other side of the equation -- that if you superimpose higher energy prices along with higher short-term interest rates on a very leveraged economy, the economy might turn out to be softer than anybody expects in the fourth quarter and as we move into next year. We may not be talking about the Fed raising rates, but next year we might be worrying about the Fed lowering rates. Energy prices really still do matter," he said.
 "This year, the market is trying to tell you to be selective. If you look at the stocks that have moved, it really has not been just 30 big stocks; it's been all asset classes, all styles -- value and growth have delivered. The ones that are really getting fundamental financial guide, post-traction are those that are delivering. So my guess is selectivity is the key, and I think you've got to be in kind of best-of-breed solutions right now," said Phil Dow, stock market strategist, Dain Rauscher Wessels.
"We think i2 Technologies (ITWO: Research, Estimates), is a best-of-breed solution basically, in the B2B space. They help companies become more productive. They will do a billion dollars this year; they'll be the first of the B2B companies that actually reaches that benchmark. Plus they are currently profitable. We think they have captured the intellectual high ground that gives them a lead in the business. We think at least a year on their nearest competitors, and maybe two years on others. So, it's a story that's going to be able to grow at 35, maybe 40 percent, for years to come, and basically dominate the space. So we think it's still kind of undervalued," Dow said.
"Pfizer (PFE: Research, Estimates), the drug group has been under a cloud, pending what will happen election-wise, Medicare/Medicaid reimbursement issues. So the margins are a little bit under question. We think the combination of Pfizer/Warner-Lambert, now the largest pharmaceutical company, is a powerful one, and is going to be able to drive the earnings at 23 percent for the foreseeable future. I think that the combined company could capture, maybe double, their global market share, over the next five years. Merck (MRK: Research, Estimates) is another one we like," he said.
"Aptar (ATR: Research, Estimates) is kind of a 'garp' story -- growth at a reasonable price. This is very much a growth packaging company that's involved with seals and closures for sports drinks and other food packages. Interestingly, they have got a measured dose product that is used in pharmaceuticals, insulin -- which down the road will have a huge market for various types of flu medications. This company is cheap right now, trading at around $23, which is about 10 times next year's number. We're looking for $1.85 this year, and $2.15 next year. Think this stock has 50 percent in it over the next 18 months or so."
-- compiled by Parija Bhatnagar and Alexandra Twin
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