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WALL STREET, CALIFORNIA | Portfolio Strategies

Stock Selection: How the Pros are Betting to Win

May 25, 1999|JOSH FRIEDMAN | TIMES STAFF WRITER

The thousands of investors who attended The Times' third annual Investment Strategies Conference over the weekend at the Los Angeles Convention Center had the opportunity to hear from some of the nation's top financial advisors and money managers.

Here are some of the themes, and individual stock ideas, that emerged from several of the stock-related panels:

Much of what portfolio managers had to say about their stock-picking strategies in the current market could fit within one of three broad themes:

* They're looking for "first-mover advantage" in companies with novel business plans or new ways to use the Internet.

* Even in this pricey market, bargains can be found. And the traditional summer pullback on Wall Street--if it happens--could present even juicier long-term buying opportunities, especially in the volatile tech sector.

* Long term, it's still hard to go wrong investing in leading companies with proven management.

At Saturday's "Growth Stocks for the New Decade" session, panelists mentioned several top names in the health-care sector as appealing at current prices.

The drug industry's structure favors big companies with the experience and wherewithal to launch products, said John Schroer of the Invesco Health Sciences Fund.

He argued that many of the leading names, such as Pfizer Inc. and Merck & Co., could be long-term buys now that they are off their highs. He also pointed to Guidant Corp., a leader in medical devices.

Schroer cited a few smaller companies as having good growth prospects. Among them: Visx, with its laser-surgery equipment to correct vision; and Gilead Sciences, a biotech firm.

Garrett Van Wagoner of Van Wagoner Funds pointed to OnHealth Network Co. as an innovator in health care and the Internet.

"They have proprietary content, while other Web sites are scanning in magazine articles," he said.

Van Wagoner also said he likes NorthPoint Communications Group Inc., which specializes in the key technology of high-speed Net access and recently came public.

Ron Ognar of Strong Growth Fund singled out networking giant Cisco Systems Inc., "long on its way to becoming the leader in building the infrastructure for the Internet."

Cisco already gets 70% of its sales online, which keeps costs low, he added. The company plows 15% of its revenue back into research and development, which could help it maintain its edge.

At Saturday's "Picking Technology Stocks" panel, Volpe Brown Whelan analyst Andrea Williams talked about America Online's huge subscriber base of 19 million households. "It's the most significant brand out there," she said. "Nobody else comes close."

Being a "first mover," as AOL was, is particularly advantageous in electronic commerce, she said.

In their brewing online battle, for example, "EToys will crush Toys R Us," Williams predicted, pointing to the example of innovator and leading Web bookseller Amazon.com versus Barnesandnoble.com. "Barnes & Noble has been on the Net for three years now and the gap is widening--not shrinking."

Dennis McKechnie of Pimco Innovation Fund said EMC Corp. looks like a bargain at recent prices, more than 20% off the stock's high. "They're a leader in their space: network data storage," he said. "Web sites will be buying a lot of EMC products to store their data."

He also praised first-mover EBay in the Internet auction field. "They have defined a new space," he said.

But Michael Murphy of California Technology Stock Letter said not all first movers make great investments. Scoffing at Amazon.com's still-massive losses, he suggested a name change to "Amazon.org."

Murphy also took a contrarian view on some battered tech stocks, saying enterprise software maker Oracle already looks like a bargain and suggesting that investors look to scoop up other tech leaders if a summer slump occurs.

In the risky biotech sector, he suggested sticking with companies such as Isis Pharmaceuticals Inc., Ligand Pharmaceuticals Inc. and Cephalon Inc., whose products have been approved by regulators. "They are going to turn profitable," he said.

The panelists agreed that business-to-business stocks can be a lucrative way to play the Internet.

"Portal [Software] is well-positioned," Murphy said. Its software helps companies provide quick service and easily bill for downloads.

McKechnie cited Siebel Systems Inc., whose software helps companies track customer feedback, and Inktomi, whose software is part of the e-commerce infrastructure.

Williams pointed to VerticalNet Inc., which helps companies in industries such as plumbing quickly establish a Web presence and links.

At Sunday's "Picking Blue-Chip Stocks" session, panelists weren't terribly concerned that growth-stock leaders have stumbled recently, after propelling the market since 1995, while momentum has shifted a bit toward "value" stocks.

"America itself is making a new quantum growth spurt," said Roger Engemann of Phoenix-Engemann Funds. "I've never seen really, really large companies growing so fast."

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