A Trio of Favorites

10/15/2004 12:00 am EST

Focus:

Here we offer a trio of ideas from three of the leading superstar analysts from Wall Street. Bob Stovall looks at large-cap value plays, Joe Battipaglia focuses on the best managed companies, and Ned Riley sees opportunity in exchange traded funds.

Stovall, Robert

Bob Stovall notes, "For the last few years I have been one of four managing directors of Wood Asset Management, which focuses on selecting large-cap value stocks that pay dividends. I think the fire casualty insurance companies will benefit from the hurricanes in Florida, as insurance rates tend to go up after bad experiences. The company with one of the best balance sheets, quality, and performance is Chubb (CB NYSE). Meanwhile, Eli Lilly (LLY NYSE) is in a sector that has been hammered for a good reason. Lilly is a large, diversified pharmaceutical company that hasn’t done well. The political environment is against it. But the pipeline is good and I think the stock will outperform the healthcare sector. I believe that natural gas is the preferred fuel of the present and the future. Encana (ECA NYSE) is one of the largest drillers and asset holders of gas in the continent. Earlier this year, they bought Tom Brown, a big US company that is involved in Rocky Mountain gas. I also think materials will have a good year. RPM International (RPM NYSE) supplies materials to builders and do-it-yourselfers. You’ve probably heard of some of their brands, such as Rustoleum. They have raised the dividend every year for many years."

Battipaglia, Joe"Right now, in an expanding economy like we have, it’s all incumbent on managements to make a difference," says Joe Battipaglia , chief investment officer at Ryan, Beck & Co. "I’ve focused on large-cap companies that have what it takes to implement the right strategy to get growth and deliver bottom line results. Procter & Gamble (PG NYSE) and Johnson & Johnson (JNJ NYSE), in their categories, are demonstrating very good strategies in exploiting a difficult pricing environment, and showing consistent unit growth. They are using acquisitions and enhancements to existing products, and they are regenerating their margins. Bank of America (BAC NYSE) is looking to have a national footprint and to become a consumer bank. They have a strong dividend yield. Meanwhile, I think real estate is going to become what utilities used to be for investors. That is a place to find good dividends, growing dividends, and a business that has counter-cyclical aspects to it. When you consider that American real estate is only now becoming equitized, it will become an ever-larger pool and will become increasingly attractive relative to other fixed income investments. In that category, I particularly like Weingarten Realty (WRI NYSE). And for those who like a good story in a pot of assets that are cheap, I’d suggest a small cap nameCentennial Communication (CYCL NASDAQ). It’s involved in wireless and cable throughout parts of the US and the Caribbean. They did withstand the recent hurricanes. It’s trading at around $5.50 and the sum of its parts is worth around $8. I think this company is going to be put into play in that manner."

Riley, Ned"I’m probably more bullish than most," says Ned Riley of State Street Global Advisors. "The economy, I believe is going to be splendid. And I say that in the context that 3% to 4% growth in the economy is a very good growth rate. The reason I am bullish long term is that I don’t hear anyone talking about secular long-term growth anymore all I hear is cyclical. People say the next six months look good or the next quarter looks good. The psychology in the market, the psychology in the boardroom, the psychology with the public, is still miserable relative to our future. I also believe this economy is destined to show higher growth in profits in the next three to four years, because of the cost-containment focus. I think the easy way for investors to reduce risk is to take a diversified approach. With the S&P 500 Index (IVV ASE) you don’t have to worry about individual stocks. The total return I expect is 8% and 11%. With the NASDAQ 100 index (QQQ ASE), you get a lot of volatility but also the diversity of 100 stocks. I also like the iShares Japan (EWJ ASE). I think Japan has the best prospects of any market over the next five to ten years, if you believe in the China miracle. China is helping Japan to an incredible degree and I think if you depend on the success of China for the future, you are going to see Japan capitalizing on that relationship."

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