Experts Try to Pick a Crop of Winners in ’99

With the turn of the calendar, Wall Street analysts, strategists and newsletter writers are inevitably ready with their lists of the “best” stocks to be buying for what lies ahead. What follows are summaries of a range of investment ideas for the new year.

This year, many market experts seem united in their belief that technology stocks will be among the top performers--as they were in 1998, despite many bumps along the way.

At the start of last year, the specter of economic weakness in Asia cast a shadow over the tech sector, Byron Wien and Peter Canelo, U.S. strategists at Morgan Stanley Dean Witter, noted in a recent report.

This year, they argue, investors have more reason to be optimistic that a near-term peak in the computer spending cycle, which occurs every few years, is still in the distance--to hit later in the year or in 2000.

What’s more, many tech companies spent large sums last year retooling their factories for the introduction of new products. The absence of that spending, combined with solid product demand, should raise operating earnings for the tech sector by 25% this year, Wien and Canelo forecast.

The strategists also favor financial stocks, arguing that the estimated $6 billion in trading losses in the second half of 1998 caused by crumbling emerging markets won’t repeat in 1999. Thus, they see operating profits of blue-chip financial companies rising 9% to 14% this year, a healthy pace, especially considering profit weakness in many other industries.

At Morgan Stanley’s Wall Street rival, Prudential Securities, analysts are touting big-name tech stocks such as BMC Software (ticker symbol: BMCS, $44.56 at year-end), Cisco Systems (CSCO, $92.88), Dell Computer (DELL, $73.19), Intel (INTC, $118.56) and Lucent Technologies (LU, $109.94), even after heady gains in 1998.

BMC, which develops systems-management software, should post strong earnings thanks to growth in its client-server business while notching solid improvement in its mainframe operation, Prudential says. It has a 12-month price target of $55 for the stock.

Dell, meanwhile, is the “strongest fundamental PC company,” capable of 45% annual earnings growth, Prudential says. The brokerage has a 12-month price target of $80 for the stock, about 10% above the current price.

Lucent, with its varied telecommunications and networking product lines, should see earnings per share rise 21% this year, Prudential predicts. Its analysts think the stock is worth at least 13% more over the next year.

Prudential analysts also are high on Black & Decker (BDK, $56.06), which they believe will undergo a “dramatic shift in investor perception” and come to be known as an “above-average growth company,” expanding earnings 15% to 20% a year. It dominates the power-tool market and will introduce an array of products this year. Prudential expects the stock to hit $72 by year-end.

At Salomon Smith Barney, market strategists feel cautious about the U.S. market for 1999, concerned that profit growth at many companies will be weak or nonexistent. So the firm suggests investing only in “those companies that are most likely to produce visible earnings growth.”

The brokerage sees major drug firms as appealing, on the basic notion that an aging population will spur greater demand for drugs. Salomon likes Bristol-Myers (BMY, $133.88), Eli Lilly (LLY, $88.88) and Schering-Plough (SGP, $55.25). Among medical-device companies, Salomon likes Medtronic (MDT, $74.28) and Biomet (BMET, $40.25).

For “value” players who are unwilling to pay today’s lofty price-to-earnings ratios for many of Wall Street’s favorite growth stocks, brokerage Donaldson, Lufkin & Jenrette Securities has compiled a list of beaten-down but nonetheless promising stocks. Many were hit hard during last year’s late-summer market slump and remain far off their 52-week highs.

Not surprisingly, the list includes a lot of energy-related stocks, such as Halliburton (HAL, $29.63), R&B; Falcon (FLC, $7.56) and Burlington Resources (BR, $35.81).

DLJ also recommends Cambridge Technology Partners (CATP, $22.13), Total Renal Care Holdings (TRL, $29.56), CBS (CBS, $32.81), Bowater (BOW, $41.44) and Mail-Well (MWL, $11.44).

Another value-focused analyst, Timothy Vick, editor of Today’s Value Investor newsletter, has identified several “low-risk” stocks that may hold up if the market weakens.

Associated Group (AGRPB, $42.50) is a provider of wireless telecom services. Vick likes the stock because it holds big positions in Tele-Communications Inc. (which is being bought by AT&T;), Liberty Media and Teligent. Those holdings are worth more, per Associated share, than the stock’s current price, he says.

Vick also expects Associated to spin off one of its “hottest properties,” the True Position global-positioning system for wireless networks.

National Presto Industries (NPK, $42.63), a maker of pressure cookers and other kitchen appliances, also is on Vick’s list. The company holds about $30 a share in cash, has no debt and boasts a dividend yield of 4.7%, Vick says. In fact, he thinks management has been far too conservative and has joined other shareholders in agitating for change at the company.

At the Dow Theory Forecasts newsletter, Comdisco (CDO, $16.88) rates a buy recommendation. The firm, which leases computer equipment, has notched 26 straight quarters of profit growth, improving 25% in the September quarter on a 15% sales gain.

The company has conservative accounting habits, and cash flow has expanded 16% annually over the last five years, the newsletter says.

Another Dow Theory pick: Crompton & Knowles (CNK, $20.88), a specialty chemicals company. It should be helped by cost-cutting and debt reduction even though stocks of commodity products such as chemicals are out of favor on Wall Street, the newsletter says.

Priced at about 12 times expected 1999 earnings per share, the stock seems “unduly cheap,” Dow Theory says.

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What are the best blue-chip stocks to buy this year? A Times analysis in Wall Street, California features 20 picks.