Analysts Split Over ‘Old Economy’ and ‘New’
What are the bargains in this volatile market? It depends on who you ask.
Mary Meeker and her colleagues at Morgan Stanley Dean Witter & Co. picked 16 Internet-related stocks Wednesday, which they said investors should bet on after the big slide in technology stocks over the last month.
Meanwhile, rival brokerage A.G. Edwards & Sons Inc. said its analysts are advising clients to broaden their investment horizons by simply looking “around the house.” The firm announced its top picks in the consumer products sector, which A.G. Edwards is over-weighting in its equity portfolio strategy.
Both brokerages recommended sticking with companies they consider sector leaders.
Although A.G. Edwards’ analysts do not believe the entire consumer group is poised for sizable gains, they are targeting big brand-name companies that they think can benefit from sales growth domestically and overseas.
Its picks include Anheuser-Busch Cos. (ticker symbol: BUD), the world’s leading brewer. “Shares are undervalued,” its analyst wrote, “and we view this as an opportunity for aggressive investors to buy.”
The analysts also selected soft drink and snack food marketer PepsiCo Inc. (PEP), saying it “deserves a premium valuation to its peer group of food companies.”
Sara Lee Corp. (SLE), the apparel and food company whose varied brands include Playtex and Jimmy Dean, made the list as well. “With current prices 40% below its 52-week high, we recommend Sara Lee as a buy for conservative investors.”
Kimberly-Clark Corp. (KMB), whose personal care products include Kleenex and Huggies, rounds out the A.G. Edwards list. “We believe the newly reorganized company now offers an asset base with greater productivity and higher return potential,” the brokerage’s analyst wrote.
Morgan Stanley’s recommendations include Internet portal Yahoo Inc. (YHOO), online broker Charles Schwab Corp. (SCH), software maker Vignette Inc. (VIGN) and network equipment maker Lucent Technologies Inc. (LU).
The firm’s Internet index fell as much as 45% from its March 9 record, and more than half the companies in the industry never will recover from the slide, Meeker and seven of the brokerage’s other Net analysts wrote in a report. Still, growth in Net usage shows no signs of slowing, and many companies will continue to benefit, they said.
Investors should “bet on a portfolio of leaders, put the seat belts on and hang on,” the analysts wrote.
Meeker, rated the No. 1 Internet analyst in Institutional Investor magazine’s annual survey, carries weight with investors because she’s been at the center of the surge in online stocks. In 1996, she and a colleague published what many consider the first definitive study of Internet-stock investing.
The Morgan Stanley analysts said Wednesday that although most Internet stocks are overvalued, some are bargains.
“Perhaps we haven’t seen a bottom yet, but for the leaders we certainly should be closer to a bottom than a top,” the report said.
The shakeout in Internet companies is a replay of the experience investors had with personal computer makers in the mid-1980s, the report said. Some of the early PC companies failed, though a few leaders turned out to be great investments.
Morgan Stanley’s picks also include Amazon.com Inc. (AMZN) and EBay Inc. (EBAY) among Internet portal and commerce companies; business-to-business commerce and software companies Agile Software Corp. (AGIL) and Ariba Inc. (ARBA); and infrastructure services companies Exodus Communications Inc. (EXDS) and Internap Network Services Corp. (INAP).
It also singled out Internet consulting and application services company Scient Corp. (SCNT); infrastructure and data networking firms Cisco Systems Inc. (CSCO), Broadcom Corp. (BRCM) and Sun Microsystems Inc. (SUNW); and telecommunications equipment companies Motorola Inc. (MOT) and JDS Uniphase Corp. (JDSU).
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Portfolio Picks: ‘New’ Vs. ‘Old’
Morgan Stanley Dean Witter said Wednesday that several beaten-down tech stocks represent bargains, while A.G. Edwards spoke up for “old-economy” consumer names. Here are their top picks:
A.G. Edwards’ Consumer Stock Picks
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Ticker Wednesday YTD % Company symbol close and change change Anheuser-Busch BUD $67.81, -$0.13 -4.3% Kimberly-Clark KMB 58.00, -0.25 -11.4 PepsiCo PEP 35.31, -0.63 +0.2 Sara Lee SLE 16.44, -0.31 -25.5 Morgan Stanley’s Tech Stock Picks Ticker Wednesday YTD % Company symbol close and change change Agile Software AGIL $34.13, -$2.75 -68.6% Amazon AMZN 53.44, -1.50 -29.8 Ariba ARBA 68.00, +3.25 -23.3 Broadcom BRCM 142.00, -14.75 +4.5 Charles Schwab SCH 43.31, -1.56 +13.2 Cisco Systems CSCO 66.13, -3.13 +23.5 EBay EBAY 150.31, -12.63 +20.1 Exodus Commun. EXDS 111.88, +0.88 +26.0 Internap Netwk Svcs. INAP 38.19, +1.94 -55.9 JDS Uniphase JDSU 91.50, -2.56 +13.4 Lucent Technologies LU 62.75, +3.50 -16.3 Motorola MOT 107.25, -10.75 -27.2 Scient SCNT 42.63, -0.25 -50.7 Sun Microsystems SUNW 88.75, -3.31 +14.6 Vignette VIGN 60.56, +3.81 +11.5 Yahoo YHOO 125.88, -0.81 -41.8 S&P; 500 1,427.47, -14.14 -2.8
Est.’ 00 Company EPS* Anheuser-Busch $3.27 Kimberly-Clark 3.32 PepsiCo 1.39 Sara Lee 1.35 Morgan Stanley’s Tech Stock Picks Est.’ 00 Company EPS* Agile Software -$0.24 Amazon -1.22 Ariba -0.25 Broadcom 0.71 Charles Schwab 1.04 Cisco Systems 0.52 EBay 0.36 Exodus Commun. -0.85 Internap Netwk Svcs. -0.80 JDS Uniphase 0.37 Lucent Technologies 1.38 Motorola 3.15 Scient -0.05 Sun Microsystems 0.95 Vignette 0.00 Yahoo 0.44 S&P; 500 56.91
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* Earnings-per-share estimates are based on analysts’ consensus for each company’s current-or just concluded-fiscal year.
Sources: Bloomberg News, Zacks Investment Research, First Call, IBES
