What Some of Our Street Strategists Like

If broad strategies leave you cold and you prefer plain old stock picking, here are a few ideas from some top money managers mentioned in past Street Strategies columns.

Pure growth-stock choices come from money manager Michael Farr, principal at Farr, Miller & Washington in Washington; micro-cap hedge fund manager Phil Lamoreaux of Lamoreaux Partners in Sausalito, Calif.; and computer industry analyst Todd Bakar of Hambrecht & Quist in San Francisco. More defensive choices come from value fund manager Nancy Tengler of UBS Asset Management in San Francisco and dividend-yield expert Gregory Weiss of Investment Quality Trends in San Diego. (Gregory is the son of Geraldine Weiss, the founder of Trends.)

* Input Output (IO), makes seismic detection equipment for oil companies. Farr says the firm had 21 straight quarters of earnings growth until last fall, when a couple of large orders failed to be finalized on time. Wall Street punished the stock--kicking it from $40 a share to $17. Farr says strong reassurances from the company that nothing fundamental had changed encouraged him to increase his stake at this level.

* Uniphase (UNPH), specializes in making laser transmitters used by long-distance and cable companies to send data through fiber-optic networks. Lamoreaux believes that companies specializing in photonics, or the transmission of light waves, will become the darlings of the next high-tech era. With patented technology supporting strong margins, he sees 60% long-term earnings growth for the next five years. At $50, UNPH already sports a rich price-to-earnings ratio of 150 on trailing 12-month earnings, but Lamoreaux expects the stock to reach at least $75 by the end of 1997.

* Photon Dynamics (PHTN), virtually the sole maker of test equipment used by companies that manufacture flat-panel computer and television displays. Lamoreaux believes the company’s fortunes will rise with the exceedingly fast growth of the flat-panel market. At a current quote of $8.50, its trailing 12-month P/E ratio is 77, but its P/E on expected 1997 earnings is only 21. He foresees a rise to $17 over the next year.

* MRV Communications (MRVC), makes laser diodes and super-fast ethernet switches for computer networks. Lamoreaux says he began buying its stock three years ago at $6. It has gone from $12 to $40 this year and now stands at $21. Lamoreaux believes a recent purchase of a small stake by Intel Corp. and a strengthening of the two companies’ marketing relationship augurs well. He estimates earnings growth at 100% for the next several years, and sees at least $32 by year-end.

* Compaq (CPQ), computer maker. The company is expected to gain market share in 1997. Bakar foresees a jump to the $90 to $100 range from $72.

* Read-Rite (RDRT), makes components for hard disk drives. Bakar expects the firm to improve on a dismal 1996 with better execution of its business plan and several new products. He sees a rise to at least $40 from $25.

* Solectron (SLR), manufactures computers, motherboards and other electronic components for other companies. Even though Solectron has already been one of the best technology investments of the decade, Bakar expects another 50% jump in the share price, to $75 from $50.

* Bell Atlantic (BEL), regional phone company that just agreed to merge with Nynex and has a lofty dividend yield of 4.5%. Phone stocks underperformed the market by 30% in 1996, but Tengler foresees a sharp rebound following recent federal deregulation actions. She foresees a price of $100 by next year, up from $67.

* American Home Products (AHP), drug company. It has underperformed the market despite having three outstanding products: Redux, an anti-obesity drug; Glucophae, a successful diabetes medication; and Premarin, the top female hormone drug. Tengler says the stock yields 2.7%, has tons of cash on the balance sheet and is well managed. She looks for earnings growth of 15% to 20% and a rise in the stock price to $80 from $60.

* 3M (MMM), highly diversified chemical and consumer products company. Tengler considers 3M cheap on a historical basis. She says the firm’s new-product pipeline has revved up recently, helping it exceed analysts’ earnings expectations. The stock rose about 30% in 1996 to $80, but she foresees a rise to $115 next year, in addition to a 2.3% dividend yield.

* Mellon Bank (MEL), primarily a money fund manager. Tengler says the company is being incorrectly priced by the market as if it were merely a bank. She says the owner of Dreyfus has doubled in the last two years and could double again in the next two years. It currently trades at $72.5 with a 3.3% yield.

* Archer-Daniels-Midland (ADM), diversified grain merchant and processor. Weiss believes ADM is already rebounding from its political and criminal travails. Including a 1% dividend yield and a 5% special stock dividend, he foresees a 25% total return for the year.

* Deluxe (DLX), the nation’s leading check printer--an out-of-favor company in an out-of-favor industry. Weiss says the firm is moving into electronic fund transfers while still growing strongly in its core business. He likes the 4.5% yield, regular dividend increases and estimated 10% earnings growth.

* Heinz (HNZ), worldwide franchiser in catsup, pet food and Starkist tuna. Weiss likes its regular dividend increases, strong overseas expansion and 3.5% yield. The stock is currently trading at $36, and Weiss sees potential for 40% appreciation in 1997.

* Central Southwest (CSR), Texas-based utility, provides electric service to surrounding states and recently bought a British utility. Weiss likes the 6.7% yield--about 1 percentage point higher than the industry norm--and 10% earnings growth. In a market he expects to go sideways for a year, Weiss thinks utilities like this one will provide handsome returns of 17% to 20%.