(MONEY Magazine) – CISCO ON THEIR MINDS

Cisco Systems' stock certainly looks expensive. Compare it to, say, 3Com. Both stocks returned 45%-plus in the second half of '98, and 3Com is expected to show earnings growth of 25% over the next five years, just five percentage points less than Cisco. Yet 3Com, at $44.75, commands a '99 P/E of 32, half Cisco's 64.

Why? Here's a clue: When Morgan Stanley Dean Witter asked chief information officers which three companies would win the bulk of network spending over the next year, Cisco was named 52% of the time as the top choice. 3Com won 4% of the first-place votes. --DUFF MCDONALD

A BIG SHOW GETS BIGGER STILL

From tyrannosaurs to Mount Everest, Imax has long been known for breathtaking productions. Now the Ontario company is taking its spectaculars from museums to malls. It placed 40 screens last year and has orders to install 84 more as the movie industry keeps building huge multiplex theaters. Because Imax screens are 10 times bigger than a typical theater's--and its features are short--moviehouses can add screenings and charge more for tickets.

Imax's gross margins are near 40%; add in its brand name and the stock should sustain a multiple above its 30% growth rate. Yet it recently traded at $31.50, or 28.5 times expected '99 earnings. --PETER KEATING

MIDCAP FUND, LARGE-CAP RETURNS

Who says you need blue chips to beat the S&P 500 index? Not Andrew Stephens, manager of the $24 million Artisan Mid Cap fund. His 13-month-old fund posted a 33.4% gain for 1998, 3 1/2 percentage points ahead of the S&P.

Stephens seeks stocks he thinks can appreciate 50% to 100% within 18 months. To limit risk, he buys companies selling at less than what a private buyer would pay. Several of his holdings were acquired in 1998, including Berg Electronics, Fred Meyer and No. 3 holding Centennial Cellular. Among current favorites: Zebra Technologies, a maker of bar-code printers, and packaging material manufacturer Sealed Air. --PENELOPE WANG

ZELL: REITS HAVE ALTERED THE GAME

Legendary real estate investor Sam Zell says REITs have done more than change his industry's financing; public ownership has changed the way companies are valued. And that raises a question about the utility of REITs as a way to diversify a portfolio. Before the REIT resurgence of the '90s, says Zell, "the industry was really an asset game," where firms were measured by the appraised value of their properties. Now, he says, "companies are increasingly valued by their ability to produce consistent earnings, measured in cash flow."

Market guru Barton Biggs of Morgan Stanley wrote in a recent commentary that if Zell's thinking is correct, "real estate is no longer an asset class that is uncorrelated with stocks and bonds."

CGM Realty fund manager Ken Heebner isn't buying. Cash flow, he says, has always mattered. As for correlation, "My REIT fund was down 21% in 1998. [The average REIT fund lost 16.4%.] And the S&P was up 27%." --JIM FREDERICK

CALL IT THE "CHANGE AGENT" INDEX

Lots of magazines, including this one, have created stock indexes to track economic and investing trends. Now a fund company and the first magazine to chronicle cyberspace have come up with an actual index fund. The Guiness Flight Wired Index Fund invests in 40 companies "that will change the way everyday things are done, from booking a hotel room to how food is grown," says John Browning, a Wired editor. (The magazine receives no money from the venture.) While that sounds like a way to play technology, it's not. The fund buys tech stalwarts like Microsoft and Yahoo!, but it also delves into biotech and blue chips such as Wal-Mart and Disney. And its initial 1.35% expense ratio is high. --SUSAN SCHERREIK

EMERGING MARKET DEBT: IS NOW THE TIME?

Emerging market bond funds were smacked last summer when global recession fears peaked. The sector has since recovered smartly as IMF loans shored up economies in Brazil and elsewhere. In the last three months of 1998, the typical fund notched a 10.4% return (price gains plus yield).

But Michael Cembalest, head of emerging markets debt at J.P. Morgan Investment Management, fears that bond prices could decline again on worries that developing countries' economies, which rely on big exports of raw materials, will be hurt by falling commodity prices, recently at 21-year lows.

Jim Craige, manager of the SEI International Emerging Markets Debt Fund, agrees that "we're not out of the woods yet," but sees a sustained recovery by late 1999. By then, he figures that Asia's economies will be back on track. In the meantime, emerging market debt is yielding nearly nine percentage points above 10-year Treasuries. --SUSAN SCHERREIK