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Wall Street, California | STREET STRATEGIES / WALTER

Good Time to Buy When Blue Chips Down

Many experts say an investment today in a stock such as Citigroup or Merrill should pay off quite well within two years.

October 13, 1998|WALTER HAMILTON | Times StafF Writer

Nobody would dispute that Merrill Lynch & Co. is one of the world's premier financial services companies. Though earnings are likely to dip this year because of trading hits and other problems amid global financial turmoil, the company will still turn a profit.

And perhaps most important, it continues to grab market share overseas as weaker players fall away.

So does the stock deserve to have plunged 60% from its July peak, to $43.88 on Monday on the New York Stock Exchange?

The New York-based brokerage giant is but one of many big-name stocks whose prices have fallen harder than many people thought possible just a month or two ago.

And, some money managers say, it's one of several large-capitalization names that are good buys at these levels.

In fact, for patient individual investors with time horizons of at least two to three years, now may be an excellent time to shop for stocks like Merrill: players that are sure not just to be standing when the clouds over the world economy dissipate, but that might emerge stronger at the expense of rivals--a boost to long-term growth prospects.

The risks are still high, of course. The spreading overseas financial crisis and a clearly slowing U.S. economy are posing challenges for even some of the country's premier blue-chip firms.

But the wholesale disgorging of some of these stocks--especially in the first half of last week--was overdone, some experts say. At their worst moments, some leading technology stocks were 40% or more off their highs of two weeks earlier.

"The market has been pricing some of these stocks like they're going out of business or as though we're going into a real recession," said Mark Stoeckle, manager of the Colonial U.S. Growth & Income fund in Boston. "I think we're going to look back a year from now and say these were wonderful opportunities to get into these stocks."

Pete Trinque, lead manager of the Phoenix Growth fund in Hartford, Conn., has lately been picking up shares of General Electric. The stock, at $74.06 on Monday, is down 24% from its 1998 peak, a deeper decline than the 16% drop in the Standard & Poor's 500 index.

Investors have been worried that GE, a player in industrial products, financial services and consumer products and services worldwide, would be hurt by global woes. But GE last Thursday delivered the 13% third-quarter earnings growth that Wall Street expected, and Trinque believes GE's diversification across varied business lines will help it stay on track.

Bob Bissell, chief investment officer of Wells Capital Management in Los Angeles, also likes GE because it generally stays only in businesses in which it can be No. 1 or No. 2 in the field.

Trinque also likes Waste Management, the garbage collection company acquired by USA Waste Services in a $25 billion deal in July. (USA Waste then took the Waste Management name.)

The shares are off 30% from their 1998 peak, and fell 17% on Wednesday alone, after two analysts slightly trimmed earnings expectations--even though they remained positive on the stock.

The downgrades prompted the company to say Thursday that it expects to meet profit estimates for the second half of the year and for 1999. Earnings are expected to climb 57% this year and 46% in 1999, according to estimates compiled by IBES International Inc.

Waste Management said overseas growth prospects had dimmed because of Asia's turmoil, but added that only 13% of revenue and less than 5% of profit come from international operations.

Still, garbage-industry stocks once were thought to be recession-proof, but that was proved false in the last recession. So some investors have been selling on U.S. slowdown worries.

Another worry: Troubled "hedge fund" Long-Term Capital Management is believed to be an investor in Waste Management. Fear that the fund might dump its shares also has weighed on the stock price lately.

Still, Trinque is confident about the company's longer-term growth prospects. What's more, the merger creates major cost-cutting opportunities, he said.

Not every stock favored by bargain-hunting pros has been decimated. Computer chip leader Intel Corp., for example, has rallied back to $85.44, and is off just 11% from its 1998 peak.

Many investors, including Colonial's Stoeckle, expect Intel to announce strong third-quarter earnings after markets close today.

Officially, Intel is expected to report third-quarter earnings of 80 cents a share, according to First Call Corp., an earnings tracker. That's less than the 88 cents Intel earned in the third quarter of 1997, but it would be a vast improvement from earlier projections.

The personal computer market has remained fairly robust even amid global turmoil. Intel has already signaled that third-quarter sales will be up about 10% over the second quarter.

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