Lehman’s Stock Picks Get Warm Reception

Lehman Bros. on Wednesday unveiled its annual list of “10 Uncommon Value” stocks, and investors immediately jumped on board nine of them.

But the instant big gains in several of the stocks could make it tougher for anyone buying the portfolio from this point to achieve its stated goal: beating the broad market over the next year.

At least, that may be true if this year’s portfolio performs in line with last year’s.

Brokerage Lehman began picking the annual 10-stock list 50 years ago, and investors have learned to pay attention because the portfolios have, on average, gained 17% a year, versus 9.5% for the Standard & Poor’s 500 index.

Last year’s portfolio also beat the S&P;, gaining 14.6% in price from last June 30 through Tuesday of this week, versus 5.7% for the index.

But several of the stocks named Wednesday rose more than 9% for the day. If the new portfolio’s overall performance over the next year is in line with last year’s, the market-beating margin may already have been largely achieved.

At the very least, investors should note that the portfolio’s winning performance can depend on one or two stocks each year--not unlike what would be the case with any portfolio of 10 stocks, but important to remember if you’re tempted to just rely on one of the picks.

Last year’s picks, for example, included AT&T; (ticker symbol: T), which has since plunged 41%. Ford Motor (F) also was on last year’s list; it has dropped 24%. Another loser was America Online (AOL), down 6%.

The big winners in last year’s portfolio: Intel (INTC), up 121%; semiconductor manufacturing equipment maker KLA-Tencor (KLAC), up 88%; and drug firm Eli Lilly (LLY), up 18%.

Lilly is the only stock from last year’s list that Lehman kept on the new list.

In general, the new portfolio is tech-heavy, with such names as Hewlett-Packard (HWP) and its recent spinoff Agilent Technologies (A); telecom equipment giants Nortel Networks (NT) and Tellabs (TLAB); BEA Systems (BEAS), a provider of e-commerce software; and chip maker Micron Technology (MU).

Also on the list: consumer and business services firm Cendant (CD); Gemstar International (GMST), a developer of electronic TV programming guides; and Internet infrastructure firm Juniper Networks (JNPR).

Given the tech stock presence on the list, Lehman’s use of the term “value” obviously isn’t in the traditional sense of denoting securities selling for very cheap prices relative to earnings.

Jeffrey Applegate, Lehman’s chief investment strategist, said the list reflects evaluation of “not only a security’s fundamental merits, but also an analysis of its unrealized potential to outpace others in its industry over the next year.”

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“Uncommon Values,” Says Lehman Bros.

Brokerage Lehman Bros. announced its annual “10 Uncommon Values” stock list on Wednesday, a 50-year tradition for the firm. The idea: Lehman analysts collectively decide on 10 stocks they expect to beat the broad market’s performance over the next 12 months. The 10 stocks, and how they fared on Wednesday:

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Ticker 52-wk. 52-wk. Wed. close Stock symbol high low and change Agilent Tech. A $162.00 $39.81 $79.50, +$4.06 BEA Systems BEAS 78.88 5.25 45.98, +7.05 Cendant CD 26.94 11.81 15.00, +2.13 Gemstar GMST 107.44 24.63 54.38, +4.50 Hewlett-Packard HWP 156.00 67.00 123.16, +7.79 Juniper Networks JNPR 156.44 15.00 136.44, +10.00 Lilly (Eli) LLY 89.44 54.00 87.33, +2.45 Micron Tech. MU 94.50 18.69 87.56, --2.44 Nortel Networks NT 72.06 19.88 68.99, +1.75 Tellabs TLAB 77.25 41.81 68.00, +5.31

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Sources: Lehman Bros., Bloomberg News