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Stock picks by the pros
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May 4, 1999: 2:59 p.m. ET
Experts see prospects in financial, pharmaceutical and Internet shares
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NEW YORK (CNNfn) - The day after the Dow Jones industrial average closed above 11,000 for the first time, it was stock picking as usual for the nation's money managers.
In a series of interviews Tuesday with CNNfn, finance professionals continued the hunt for promising companies, scrutinizing everything from banks and Internet firms to drug makers and retailers.
Below is a smattering of what they're buying and why:
As Congress considers overhauling the nation's Depression-era banking laws, strategists are positioning themselves to profit from the changes. Specifically, analysts are seeking possible takeover targets under a proposed law allowing mergers among banks, securities firms and insurers.
George Schmidt, fund manager at John Hancock Funds, is one such analyst.
Several medium sized banks, Schmidt said, "are not really large enough to survive this consolidation process and will someday be swallowed up by mega-banks. And these stocks actually have lagged the market by quite a bit over the last year, so there's some really good values in that area."
Specifically, Schmidt likes Legg Mason (LM), the Baltimore, Md.-based investment bank and brokerage with a $1.9 billion market value.
Schmidt also favors Summit Bancorp (SUB), the Princeton, N.J.-based bank, and the last, large independent bank left in the state.
He also embraces Lincoln Financial Group (LNC), the Fort Wayne, Ind.-based insurer for its emphasis on underwriting annuities.
"Annuities are the fastest-growing aspect of the life business and we think a lot of banks would be interested in merging with insurance companies when they get that chance," Schmidt said.
Ned Riley, chief investment officer at BankBoston, likes financial stocks for their potential to outpace the rest of the market.
"I believe the group is going to be able to grow at least 8 to 10 percent in the future and I think the S&P earnings are going to slow down to maybe 7 or 8 percent," Riley said. "So this group could have actually a premium growth rate and yet a discount to the market that's, at least, 50 percent, if not lower."
Specifically, Riley favors Bank of America (BAC), the Charlotte, N.C.-based giant, and Charter One Financial (COFI), the Cleveland, Ohio-based savings and loan.
And while the once-hot pharmaceutical sector has faltered this year, Riley is sticking with Merck (MRK), despite the stock's 14 percent slide in April.
"We're looking at a company that's going to grow, I think, at about 14 percent over the next several years with, I might add, a lot of predictability and I think a lot of visibility and a high level of confidence," Riley said of the Whitehouse, N.J.-based drug maker. "So with Merck at 31 times earnings now and down about 20 percent from its high, I think we're getting into an opportunity where it's a lot better than trying to buy a cyclical that's selling at 27 times earnings and where the visibility is a lot more questionable."
Jim Preissler, PaineWebber's Internet analyst, is also sticking with a proven company, but in this case it's America Online (AOL), the leading Internet provider with 16.9 million subscribers..
"I think it's the most mature (Internet company) operationally, as well as just where it is in it's market cycle," Preissler said. "So I think it's clearly the best play in whole sector."
Preissler also likes search-engine Infoseek (SEEK). He has a $110 price target, more than double its Monday closing price of 47-1/ 4.
Turning to office super stores, Rick White, portfolio manager at Neuberger Berman, likes the two heavyweights: Staples (SPLS) and Office Depot (ODP).
The companies, he said, are becoming a "duopoly in the office super store category and they are likely to see an accelerating same-store sales trend over the course of the year."
With interest rates inching up, William Roe, money manager at Melhado Flynn & Co., is buying defensive stocks, which tend to decline less when the market weakens.
In this respect, Roe likes Philip Morris (MO), the world's largest cigarette maker. 
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