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Personal Finance > Investing
Top 25 stocks for 2001
December 29, 2000: 5:55 a.m. ET

Five top-performing mutual-fund managers each pick five stocks for new year
By Staff Writer Alex Frew McMillan
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NEW YORK (CNNfn) - Success breeds success, so they say. So who better to turn to for stock tips for 2001 than the managers of the best-performing mutual funds this year?

CNNfn.com tapped five managers whose funds topped their asset class from Jan. 1 through Dec. 15, according to fund tracker Morningstar. Each picked his or her top five stocks for next year.

Of course, investment advisers counsel against chasing returns. There's no guarantee these funds will top the charts again next year, as the managers freely admit.

"Quite honestly, it's a good news, bad news situation," said Michael Sandler, one of five managers of the UAM Clipper Focus fund. "The bad news is our portfolio is not as cheap as it was at the beginning of the year."

Timing techs right



Sandler ended last year excited -- he felt confident his portfolio was substantially undervalued. And 2000 proved him right. The fund topped Morningstar's large-cap value category.

If the managers owned tech, most got out this spring. That helped Clare Brody, one of four managers of the Deutsche European Equity fund, build it into the top-performing Europe fund in 2001. At times, it was as much as 20 percent in cash this year. Its savviest plays were in defensive sectors such as banking, insurance, oil and utilities.

Those sectors still hold a lot of promise, as a perusal of the picks shows. But Tom Barry, whose Bjurman Micro-Cap Growth fund led the small-cap growth pack in 2000, has about a quarter of his portfolio in tech.

Investors are despondent, particularly about techs. "The more despondent they are, the more likely they are they should be putting their money in the market," he said.

Hedging helped Paul Bottum, one of three managers of the American Eagle Capital Appreciation fund, to the top of the large-cap growth charts. His fund, which takes a trading approach that isn't particularly tax-efficient, isn't for everyone, he said.

But the ability to hedge, which most funds don't do, helped the fund lock in gains on stocks such as Corning. The fund only opened this year, too, which also helped.

"In the environment we're in now, you have to be nimble," he said.

A stock-picker's market



That's a theme in these choppy markets. Though the managers often found themselves heavy in "safe" industries such as insurance and finance, most backed into those industries by picking individual stocks, rather than the industry itself.

Michael Prober, whose CRM Mid Cap Value fund was the top mid-cap value performer, likes to search for change. He hunts for undervalued companies going through acquisitions and management changes.

The fund was heavy in four industries last year: energy pipeline companies, utilities, property-and-casualty insurers and education companies. But he took a "bottom up" stock-picking approach.

The companies led him to those industries, rather than the other way round. He thinks that stock-picking approach looks good for 2001, too, as the markets stumble into a new year.

Here are the picks, in alphabetical order by manager:


Tom Barry

portfolio manager

Bjurman Micro-Cap Growth fund (BMCFX)

top-performing small-cap growth fund, up 33.7 percent YTD through Dec. 15

1. Measurement Specialties (MSS: Research, Estimates)

"We're going to have a very nice rally in the technology sector," Barry said. But it's hard to find small-cap techs -- most hot techs have billion-dollar market caps. Barry likes Measurement Specialties, which makes products with electronic sensors, such as bodyweight scales and distance trackers. "It's a pretty steady grower," he said. He expects earnings growth of 50 percent next year, after 26 percent this year and 200 percent in 1999.

2. MapInfo (MAPS: Research, Estimates)

This maker of mapping software should show earnings growth of around 40 percent in 2001, after something near 55 percent this year, according to Barry. He likes its advanced technology, which can be used for making many kinds of maps, and for businesses to understand their customers.

3. Cubic (CUB: Research, Estimates)

Cubic makes surveillance and military-range instruments. That puts it in the telecom world, but it's only trading at a price-earnings ratio of 13, as of Dec. 27. He thinks its earnings are likely to grow between 50 percent and 100 percent next year.

4. U.S. Physical Therapy (USPH: Research, Estimates)

USPH is a healthcare play -- and therefore in a defensive sector. The company runs outpatient physical therapy clinics and post-operative services for orthopedic patients. So it stands to gain from the aging population, which should guarantee it "a steady pool of clients," Barry said. He expects earnings growth of 30 percent to 40 percent for the next five years.

5. OceanFirst Financial (OCFC: Research, Estimates)

This holding company for a small, New Jersey-based bank should grow earnings by 15 percent to 20 percent in 2001, according to Barry. "What I really like about these smaller companies and smaller banks is that they really know their customers," he said. As a secondary benefit, there's a lot of consolidation in financial services. "That's not the reason we bought the stock," he said. But he'll take it.


Paul Bottum

one of three portfolio managers

American Eagle Capital Appreciation fund (AECAX)

top-performing large-cap growth fund, up 83.1 percent YTD through Dec. 15

1. Pharmacia (PHA: Research, Estimates)

"They have a wonderful pipeline of drugs," Bottum said. He expects the company to benefit from the aging population and the new Bush administration's commitment to Medicare reform. "On the surface, people would be concerned about it. but it will probably bring more people into the pool that can choose drugs like from companies like Pharmacia," he said. The stock is also benefiting from the euro's turnaround.

2. Gemstar-TV Guide International (GMST: Research, Estimates)

Gemstar develops software that helps companies present information on television. The software is interactive, so viewers can manipulate it. That applies to information from TV Guide magazine right now. But as broadband television takes hold, Bottum expects Gemstar technology to enable viewers to buy goods via TV, make requests and so on. "We're just very bullish on the concept of that two-way interaction," he said.

3. Sepracor (SEPR: Research, Estimates)

Bottum believes Sepracor will benefit from the large number of patent-protected drugs coming off patent over the next few years. Faced with a patent expiring, the big boys often turn to specialty drug companies such as Sepracor to extend the life of the drug. That may involve changing the way the drug is administered or altering the formula, so it can resubmit the patent. Bottum also likes the way Sepracor is developing its own drugs. That yields greater revenue than typical licensing deals, he noted.

4. Starbucks (SBUX: Research, Estimates)

The public's appetite for a cup of joe means Bottum expects way more Starbucks stores. "We expect unit growth in the United States to be very aggressive," he said. "But more importantly, they're really expanding into Japan and Europe aggressively." While the economy may slow, Bottum thinks demand for that daily latte is pretty "inelastic," in econspeak. He thinks lifestyle changes, in which upscale brews sub for sandwiches, and caffeine's addictive qualities mean Starbucks will hold up in a downturn.

5. Corning (GLW: Research, Estimates)

One of the fund's top performers for this year, Bottum still likes it for 2001. But he is watching for the need to hedge, to protect gains. Glassworks has a hot product in its large extended area fiber, or LEAF, Bottum notes. It allows a provider to use fewer amplifiers because it holds its signal well. And that means good sales and higher margins for Corning, Bottum says. He also likes its budding business making glass beads for flat-panel screens used on TVs and computers. But the stock is susceptible to an economic downturn and a slowing in capital spending, he says.


Clare Brody

one of four portfolio managers

Deutsche European Equity fund (MEUEX)

top-performing European stock fund, up 88.4 percent YTD through Dec. 15

1. ING (ING: Research, Estimates)

This diversified financial services company has been through management turmoil and a weak domestic market of late. But Brody thinks it will grow earnings 20 percent over the next three years, driven mostly by its entrance into the U.S. life insurance market and its leading positions in Latin America and Asia, ex-Japan. Deutsche Bank figures it trades at a 25 percent discount to its current "embedded," or inherent, value.

2. Aventis (AVE: Research, Estimates)

This product of the merger between Hoechst and Rhone-Poulenc will see earnings growth of 25 percent, almost twice the pharmaceutical industry average of 14 percent, according to Brody. Its revenue growth will also be superior, she says. But it trades at a discount because investors are waiting for it to spin off its ag-chemical and industrial gas businesses. Its drug pipeline is also much more proven than most drug companies, she says.

3. E.ON (EON: Research, Estimates)

A German electric utility formed by a recent merger, E.ON has been weathering cost-cutting to offset the impact of increased utility competition. Deregulation is under way in Germany, and Brody says E.ON has felt the pains already. It has disposed of noncore businesses and initiated a stock buyback program. She expects another buyback once this one is finished. "We're seeing the first signs of a recovery in electricity prices because of further industry consolidation and a reduction in domestic capacity," she said.

4. Vivendi Universal (V: Research, Estimates)

Brody likes Vivendi's transformation from a "boring" French water utility into a global media content company. Vivendi is working to develop a mobile portal to run over mobile-phone company Vodafone's network, which is early on but has "a good head start," according to Brody. Less than 5 percent of its revenue is exposed to advertising, she said, but Vivendi trades at a discount to such other global media providers as Disney, News Corp. and CNN parent Time Warner.

5. Elan (ELN: Research, Estimates)

Elan is transforming itself from a drug-delivery company into a pure-play pharmaceutical company, Brody explains. She expects 30 percent earnings growth over the next five years. It trades at a 20 percent discount to the pharmaceutical sector, she said, but she feels she knows management well. The risk profile is low with Elan, she says.


Michael Prober

portfolio manager, CRM Mid Cap Value fund (CRIMX)

top-performing mid-cap value fund, up 44.1 percent YTD through Dec. 15

1. Embraer (ERJ: Research, Estimates)

There are only three companies making regional jet planes, and this is the largest. Prober says it stands to benefit as airlines replace prop planes with small jets -- 50 seats or less -- and because 96 percent of its sales are dollar based. But Embraer, which trades in the United States as an American depository receipt, is a Brazilian company. Does that put people off? "Maybe," Prober admitted. "But that's the opportunity. This will move from what's perceived to be a Brazilian company to a world-class aerospace holding."

2. Consol Energy (CNX: Research, Estimates)

Consol is the largest publicly traded coal company in the United States, Prober explained. With oil prices high, "coal prices have increased about 40 percent over the last nine months," he said. There is limited capacity. But that's only half the story -- Prober loves Consol's large natural-gas reserves. Not many investors know about that, he said, and he thinks their reserves are underestimated. "Only one or two coal analysts follow the company, but it's really becoming a gas play."

3. Amphenol (APH: Research, Estimates)

"The stock got crushed," Prober noted, losing close to half its value in November and December. But he said it has strong market share making cable for cable television companies. It also makes connectors for wireless base stations and hand sets. Several competitors have sold out at higher multiples, Prober said. Buyout firm Kohlberg Kravis Roberts & Co. owns the majority of the stock.

4. Aon (AOC: Research, Estimates)

The second-largest insurance broker, after Marsh & McLennan, has grown through acquisition. "They've stumbled by integrating all these companies, especially in Europe," Prober said. Problems integrating the back office have depressed the stock, he added. But he thinks that at 14 times 2001 earnings, it's relatively cheap, low risk and has a good dividend yield. "It's probably a terrific takeout candidate for Citicorp or some large financial institution," he said.

5. Federated Department Stores (FD: Research, Estimates)

The whole department store group is down, Prober noted. Federated has a double whammy because it also struggled to deal with Fingerhut, a problem credit-card business that it is exiting. Expectations are low after a poor Christmas. But Prober believes that, sometime over the next six months, the $33 stock will be back trading in the $40s.


Michael Sandler

Portfolio manager, UAM Clipper Focus fund (CLPRX)

Top-performing large-cap value fund, up 38.6 percent YTD through Dec. 15

1. Freddie Mac (FRE: Research, Estimates)

The Federal Home Mortgage Corp. -- Freddie Mac to friends -- is a "cash machine," according to Sandler. He thinks it can grow earnings in the low double digits for 2001. He also likes the growing number of mortgages that Freddie Mac is keeping on its books, historically a small component of its business. "They've got the technology and knowledge base to manage those mortgages well," he said.

2. Philip Morris (MO: Research, Estimates)

A quintessential value stock, Big Mo isn't the deal it was. "It's not as cheap as it was when it was trading below $40," Sandler noted. It is also the most controversial stock he holds. But Philip Morris has "some of the best brands on earth," he said. Growth prospects for Europe, Asia and Latin America are good. And it sells around 10 times next year's cash earnings. "There are very few companies that do sell for that level," he said.

3. Equity Residential Properties Trust (EQR: Research, Estimates)

Equity Residential is a stable real estate investment trust (REIT) that Sandler likes for its good management. "It's a business that is not going to grow very fast. But, again, it's going to throw off a very stable amount of cash," he said. It has a strong dividend yield, like many REITs. Sandler likes Equity's focus on apartments, which he says hold up better in down economic times than other kinds of real estate.

4. McDonald's (MCD: Research, Estimates)

"Everyone around the world knows Mickey D's," Sandler said. It is well-run, he believes, but it stumbled this year. U.S. same-store sales were weaker than expected, partly because of strong promotions last year. The United Kingdom and Germany are strong markets, too, so the euro's weakness hurt. Sandler likes the fact that McDonald's lowest margins are in parts of the world where it has the best growth prospects -- Asia, southern and eastern Europe and Latin America.

5. Manpower (MAN: Research, Estimates)

Manpower is a well-known name in temporary staffing. But many people don't know that Manpower's biggest market is France, not the United States, Sandler says. He expects the fruits of its expansion in Spain and Italy to come soon, too. This year, Manpower lost a tax benefit in France, where it is relatively tricky to hire full-time workers Temp workers are also the first to go in poor economic times. But Sandler feels both weaknesses are already embedded in the price. graphic

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.