Bargain-Basement Sale - Brief Article

Kiplinger's Personal Finance Magazine, Nov, 2000 by Jeffrey R. Kosnett

A value hunter names his favorites.

Few pros are doing a better job of riding the revival of value investing than Kent Simons, manager of Neuberqer Berman Focus. The fund, which owns stocks of mostly large and midsize companies, was up 28% to September 18. Its price-earnings ratio is well below that of Standard & Poor's 500-stock index, but Simons's holdings offer comparable growth prospects. Says Simons: "The best companies go out of favor as often as the not-so-good ones." His top picks:

* Amkor Technology

(AMKR, $28). This bloodied technology stock, down 57% since March, provides packaging and testing services for semi-conductor makers. Simons says that investors view Amkor as merely a chip assembler. But, he argues, it's really an outsourcing play-its largest customers are Intel and Texas Instruments--and its stock deserves a price--earnings ratio in the 30s or 40s, comparable to other outsourcing stocks, such as Flextronics and SCI Systems. According to First Call/Thomson Financial, Amkor trades at 13 times analysts' consensus earnings estimate for 2001 of $2.22 per share.

* Citigroup (C, $55). Shares of the nation's largest banking company have more than doubled since late 1998, but Simons says that Citigroup is still a buy. He expects Citigroup to keep growing faster than most banks because of its leading positions in insurance (Travelers), investments (Salomon Smith Barney) and lending. And he endorses the company's planned purchase of Associates First Capital, the nation's largest publicly traded finance company. "It will add to the earnings and add to the growth rate," he says. Analysts on average expect Citigroup to earn $3.06 per share next year and generate annual earnings growth of 15% over the longer term.

* FleetBoston (FBF, $42). Simons calls the combination of Fleet and Bank-Boston a "mini Citi" for its similar mix of retail and institutional banking, investment management, credit card and mortgage-lending businesses. "It has a faster growth rate than most banks," but the stock sells at only 12 times consensus estimated profits of $3.73 per share in 2001. That, says Simons, represents "great value." The pebble in this shoe is that a fair percentage of its earnings come from Latin America, where business can be volatile. Brazil, though, is doing well now and could add some spice to the stock.

* TJX (TJX, $23). Higher interest rates and gasoline prices have helped batter retailing stocks, but other merchants' troubles could help TJX. Its T.J. Maxx and Marshalls stores are stocked with leftover merchandise from more fashionable specialty and department stores, and right now TJX has a chance to get these goods on unusually favorable terms. Meanwhile, even though TJX has been meeting earnings targets, the stock sells at just ten times Simons's estimate of $2.20 per share for 2001. If the stock's P/E ratio can revisit the 20s, where it has traded before, TJX holders may be able to wear any labels they like.