After Rocky Quarter, Pickers Bet on Consumers

Just in time for Halloween, the third-quarter stock-picking session was decidedly scary.

The six stocks selected by Southeastern analysts and money managers for The Wall Street Journal fell 16% on average.

Of course, the entire Street was buffeted by fears of a slowing economy. By comparison, the Standard & Poor's 500 stock-index fell 6%. Still, the latest period was quite a comedown from a second quarter in which the pickers collectively managed a return of 21%.

It's been a tough year for the stock pickers: They have produced negative returns in two of the three quarters, including an average loss of 16% in the first quarter.

The latest quarter's winning pick came from the retail sector. Cato, a Charlotte women's clothing chain, surged 21% to $14.094. The stock was picked by John Diffendal and Eliot Laurence at Nashville investment firm J.C. Bradford.

With a dicey fourth quarter ahead, nine analysts and money managers bravely stepped forward to make their choices, which are heavily weighted toward the consumer sector. (Note: All prices and price/earnings ratios are as of Monday's market closing.)

Here's a look:

Frank Jolley
President, Jolley Asset Management
Rocky Mount, N.C.

The textile industry these days isn't an attention grabber, and that could be hurting shares of Ruddick, which trades at $15.875.

But Mr. Jolley says it's a mistake to focus solely on Ruddick's textile business. The Charlotte company does own American & Efird, a thread-maker, which contributes 14% of Ruddick's annual revenue.

"The textile industry is in such a funk that nobody wants to look at anything that is textile related," Mr. Jolley says.

But the real story, Mr. Jolley says, is Ruddick's other asset: 143 Harris Teeter grocery stores known for their upscale offerings such as hundreds of wine selections. Harris Teeter contributes about 86% of Ruddick's annual sales on average.

Mr. Jolley , who owns 20,475 Ruddick shares, says Harris Teeter itself is worth $22 to $26 if the grocery chain is sold or spun off to shareholders.

Aside from that hidden value, Mr. Jolley says Ruddick, which trades at 15 times earnings expectations of $1.06 for 1999, is the perfect way to play a slow economy.

"People will continue to buy groceries," Mr. Jolley says.

His price target for the stock: $22 to $24 in the next 12 months.

James Savage
Director of equity research, Regions Funds, Birmingham, Ala.
Michael Phebu
Portfolio manager

Can Coca-Cola fall much lower?

The Atlanta beverage giant this year has fallen 29% to the $47 range, hurt by a contaminated-bottle scare in Belgium and a slowdown in the Asian economy. And the company already has guided analysts lower in their expectations for the third quarter. Coca-Cola, which is trading at 37 times 1999 earnings expectations, is expected to report third-quarter earnings-per-share of 32 cents.

But Messrs. Savage and Phebus say that the events in Belgium were an anomaly, and that the Asian economy, especially in Japan, is improving.

"I have a feeling the worst is behind them," Mr. Phebus says. "They had a lot happen to them outside their control."

Regions Funds owns about 7.9 million shares of the stock.

"It's cheap, and it is something we are buying," says Mr. Phebus, who sees the stock hitting $65 in the next 12 to 18 months.

Mr. Phebus also sees domestic unit-case volume, expected to increase 2% to 3% in the third quarter, as fully recovering to around 4% growth by the first half of next year. On the international side, sales in Japan, may be seeing a revival.

"You're seeing a recovery going on," Mr. Phebus says.

John Allen
President, StockCar Stocks Index Fund, Charlotte, N.C.

In just a year, Daytona Beach-based International Speedway has doubled to $52. And the operator of 10 super-speedway auto-racing tracks currently trades at 43 times earnings estimates of $1.20 a share for 2000, compared with its peer group, which has a multiple of 26.

So is this engine too hot to touch?

Not in Mr. Allen's view. The portfolio manager, who owns 5,600 shares of the stock in his index fund, sees the stock surging even higher, thanks to a new television deal that the National Association for Stock Car Auto Racing is negotiating.

"The big winner for the speedway stocks in the fourth quarter could be the announcement of a new Nascar-negotiated television package," Mr. Allen says.

With its acquisition earlier this year of Detroit-based Penske Motorsports, International Speedway owns 10 major Nascar tracks, giving it the pole position to claim revenue from the TV pact.

Gregg Lucas
Analyst, Wachovia Securities, Charlotte, N.C.

Piedmont Natural Gas, the second-largest natural-gas distributor in the Southeast, is trading at $31.25, down 13% from early in 1999 when takeover speculation drove the stock higher.

But speculation has subsided, and Mr. Lucas says that now is the right time to purchase shares. He recently upgraded the stock to a "buy" from "neutral," citing the depressed share price.

It looks inexpensive compared with its peers. The Charlotte company, whose pipelines run through Nashville and the Interstate-85 corridor in the Carolinas, trades at 16 times 1999 earnings expectations of $1.88 a share, compared with a peer multiple of 18.

"We think the valuation is attractive," Mr. Lucas says. He also likes the rate at which the company's customers are increasing. Piedmont currently has 625,000 customers and is gaining new ones at a 5.6% annual clip, compared with an industry national average of 1.6%.

While Mr. Lucas doesn't discount a purchase of the company down the road, the stock, he says, is attractive "on pure fundamentals."

His price target: $37.

Robert Derrington
Analyst, SunTrust Equitable Securities, Nashville

CBRL Group, owner of the Cracker Barrel restaurant chain famous for its road-side Southern fare, has seen its stock stuck in red-eye gravy. It trades at $15.188, nearly a third off its 52-week high of $28.313, which it hit about a year ago.

Central to the stock drop has been a loss in customer traffic, a result of higher prices and long waits for service.

"Customers found that they were waiting too long to get too little," Mr. Derrington says. But Mr. Derrington argues that the Lebanon, Tenn., company finally is taking the right steps to fix the problems. It has reduced turnover of experienced managers and it has cut menu prices, reversing a 4.5% increase that went into effect in May 1998.

Citing those changes, Mr. Derrington last month upgraded the stock to "buy" from "long-term attractive." He sees the stock, which trades at 12 times 2000 earnings estimates of $1.25, hitting $18 in the next 12 to 18 months.

Still, Mr. Derrington cautions that the fixes won't immediately impact earnings.

"We are in the early phase of the turnaround," he says.

John Diffendal
Research Director, J.C. Bradford & Co., Nashville
Frank Morgan
Equity analyst

The beleaguered hospital chain Columbia/HCA may be worth a new look.

The Nashville company, of course, has been in the spotlight for the past three years because of a continuing federal probe into the company's Medicare-filing practices. Under former Chief Executive Richard Scott, Columbia/HCA' s stock tumbled 43% in the past three years to its current range of $21.50.

Since Mr. Scott was forced to resign in July 1997, however, Chairman Thomas Frist has sold off hospitals, improved relations with physicians and instituted a one-million-share buyback. (Mr. Morgan points out that Mr. Frist has bought 822,208 shares himself in the $22.44 range.)

Mr. Morgan cheers Mr. Frist's move to reduce the hospitals Columbia/HCA owns to 200, down from the 350 peak it hit in 1995. Now, says Mr. Morgan, the company can focus on markets where it is the dominant player, such as Richmond, Va., Denver and Dallas.

To be sure, the federal probe lingers, but Mr. Morgan argues that that is built into the stock price.

"Columbia/HCA is a solid proxy for a turnaround of the health-care sector, especially the hospital sector," Mr. Morgan says. He sees the stock, currently trading at 15 times 2000 earnings estimates, hitting $27 to $28 within 12 to 18 months.

David Henwood
Director of Equity Research
Raymond James & Associates, St. Petersburg

Royal Caribbean might be a risky play should the economy sink. After all, not many consumers are going to book a ritzy cruise if interest rates keep rising.

Mr. Henwood says fears of a slowing economy do cast a shadow over the $45.50 stock.

But he points out that the Miami-based cruise-line operator is cheap when compared with industry leader Carnival Cruise Lines, which also is based in Miami. At its current price, Royal Caribbean trades at 19 times 2000 earnings expectations of $2.41, which would be a 18% increase from 1999 projections. And the stock is trading at a 25% discount to Carnival, which trades at 24 times 2000 estimates.

Mr. Henwood also is a fan of Royal Caribbean's plans to boost capacity. The company has ordered eight new ships through 2003.

"They are going to have the most dramatic growth in terms of capacity," says Mr. Henwood, who sees the stock touching $60 within 12 months.


How the Third-Quarter Picks Did
                                     Monday        Pct.
Stock Picker (Firm) Stock (symbol)    Close       Change
John Diffendal/Eliot Laurence (J.C. Bradford)
                    Cato (CACOA)     14.094        +21%
Gary Tapp/Dan Wewer (Robinson-Humphrey)
                    Home Depot (HD)  68.625         +6
Gene Hensler/Theodore Parrish/
Walter Stackow (Henssler Equity Fund)
                    Equifax (EFX)    28.125        -21
Tim McIntosh (Strategic Investment Partners)
    Windmere-Durable Holdings (WND) 12.063         -23
John White/Kay Norwood (Wachovia Securities)
                     Mohawk (MHK)   19.938         -34
Craig Weichmann (Morgan Keegan)
                     Saks (SKS)     15.188         -47
Average Percent Change of Picks:
       -16% Loss in S&P 500-Stock Index:           -6%
Stock Pickers' Fourth-Quarter Plays
Stock Picker Stock  (Symbol)                    Close
James Savage / Michael Phebus
                     Coca-Cola (KO)             47.563
John Allen           Intl. Speedway (ISCA)      52.00
Gregg Lucas          Piedmont Natural Gas (PNY) 31.25
Robert Derrington    CBRL Group (CBRL)          15.188
John Diffendal / Frank Morgan
                     Columbia/HCA (Col)         21.50
David Henwood Royal  Carribbean (RCL)           45.50
Frank  Jolley   Ruddick (RDK)          	       15.875

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