(MONEY Magazine) – Can Heinz ketch up?

After sitting unwanted on the shelf last year, food stocks are finally moving. The sector has jumped 21% in six months. This rebound was sparked by consolidation, with Unilever buying Bestfoods and Philip Morris snapping up Nabisco. The deals highlighted just how cheap food stocks had become. One beneficiary of this renewed interest has been H.J. Heinz (HNZ), up 31% since March.

Prior to that bounce, Heinz had been in a tailspin. Since late '98, the stock had fallen nearly 50%. The problem: Heinz was losing market share and its biggest products--ketchup and Starkist tuna--promised low growth.

Can Heinz sustain its recent recovery? Management has cut costs and is betting on upcoming products like organic baby food, a no-drip ketchup bottle and--no kidding--"tuna in a pouch." Heinz is also boosting its marketing budget. But PaineWebber analyst John O'Neil remains unimpressed: "They're only in the second inning of a turnaround here, and we need to know if the pitcher can go the distance." --JEFF NASH

The Swiss are coming

Drug stocks are on a high. Since March, Merck has soared 33% and Pfizer is up 41%. As a result, it's now tough to find bargains in the sector. Pfizer, for example, trades at a rich 33 times next year's estimated earnings. If you're looking for a cheaper play, consider Novartis (NVS), a Swiss giant that began trading on the New York Stock Exchange in May.

Novartis, which sells TheraFlu, Gas-X and Ritalin, is one of the world's biggest pharmaceutical companies, and it has a modest P/E of 22. One reason for this discount is that it's expected to eke out growth of just 6% this year vs. 17% for Pfizer.

But Novartis' growth rate is likely to jump over the next year or two. For a start, it plans to shed its agribusiness unit, focusing instead on the higher-growth drug business. The firm also boasts a deep pipeline of new drugs, says Sam Isaly of Eaton Vance Worldwide Health Sciences, which has 6% of its assets in the stock. He figures Novartis has at least 10 drugs that could hit the market over the next couple of years, including a promising painkiller. "We're looking for a point of inflection where growth accelerates," says Isaly, "and we think Novartis has enough products that it can do that." --ADRIENNE CARTER

Is the chip boom ending?

Shares of semiconductor equipment manufacturer Applied Materials (AMAT) have been insanely volatile in the past year. In April the stock hit a high of $115, up from $31 in August '99. But it has since slipped to $84--about 25% off its peak. Doug McKay of the Red Oak Technology Select fund sees that tumble as a buying opportunity. "The secular trends are still very strong," he says, noting that manufacturers keep cramming more chips into everything from cars to TVs. To meet that demand, chipmakers must build or upgrade factories, which should boost sales for equipment suppliers like Applied.

This is a ferociously cyclical business, though, and there are warning signs that chip sales might not keep growing at such a torrid rate. Joe McNay of Essex Investment Management recently dumped Applied Materials, along with other equipment holdings like Teradyne. "We see Asia beginning to slow down," he says. "It sets the stage for a setback." --PABLO GALARZA

Unocal finds a gusher

Shares in oil and gas producer Unocal (UCL) have performed dismally in recent years. The stock is worth less now than in 1997, even though oil and gas prices have soared. But Unocal's fortunes may be about to change, thanks in part to its lawyers. In 1994, Unocal patented processes for producing cleaner-burning fuel. With strict auto emissions standards now spreading nationwide, these patents look like the legal equivalent of a gusher. Rivals like ExxonMobil have fought to overturn the patents, but Unocal has triumphed in two courts. If the Supreme Court upholds the patents (a decision that could come down as soon as this month), Unocal stands to net $100 million to $300 million a year in royalties, says Mark Fischer, an analyst at Bank of America Securities. That's quite a windfall for a firm that earned $137 million in '99.

Patent or no patent, Kevin Rendino of Merrill Lynch Basic Value says Unocal is a bargain at a recent $33. With oil at $27 a barrel (up from $10 in '98), he figures Unocal is worth $45: "The patent is just a kicker." --JON BIRGER

Nokia stumbles

In just four years, shares in Nokia (NOK) have shot up twentyfold, and the firm has emerged as the global king of mobile phones. Since June, however, the stock has dropped by a third, slicing nearly $100 billion off Nokia's market value. One reason: a July warning that third-quarter earnings would disappoint. Suddenly, the Finnish company no longer seems quite so invulnerable.

The big worry? Handset sales growth seems to be slowing. Dataquest projects that handset sales in Europe, for example, will rise 37% in 2001 but only 16% in 2002. Margins are shrinking too as competition heats up and buyers choose cheaper models. Meanwhile, Nokia has a P/E of 55--pricey for an outfit that's losing momentum. --CAROLYN WHELAN