Stocks On Sale - securities on the market

Kiplinger's Personal Finance Magazine, June, 2001 by Jeffrey R. Kosnett

Clear Channel Communications (CCU). Shares of the world's biggest radio and billboard company are actually up since we recommended them at $53 in January ("10 Stocks to Own in 2001"). But at $57, the stock is still 40% off its record high, set in January 2000. Investors are concerned about a weak advertising market. But, say many analysts, the radio and billboard businesses are fairly impervious to recession. According to First Call/Thomson Financial, analysts see Clear Channel's after-tax cash flow (used to measure media companies) growing a solid 13% this year.

Enron (ENE). The nation's largest energy trader has massive power-generation capacity and a 32,000-mile pipeline for distributing natural gas. But its bid to remake itself into a premier telecommunications player was what sparked investors' interest over the past few years. Now that telecommunications is out of favor, the bandwidth gambit is hurting the stock. It's off 36%, to $59, from its 52-week high. But Enron's core energy business is worth $70 a share, says J.P. Morgan Chase analyst Anatol Feygin. Analysts expect earnings to grow 19% this year, to $1.75 a share.

General Electric (GE). The world's most valuable company is on sale at 28% off its high. Investors are worried about GE's pending acquisition of Honeywell, the impending retirement of CEO Jack Welch and the possible impact of the economic slowdown. But the broad nature of GE's business--it makes everything from light bulbs to jet engines and owns NBC and GE Capital--insulates it to some extent from the vicissitudes of the overall economy. At $43, GE trades at 29 times estimated 2001 earnings of $1.47 per share. That's near the lowest price-earnings ratio for GE's stock since 1997.

Home Depot (HD). Hurt by slumping sales growth, shares of the giant hardware chain are off 41% from their 52-week high. But, says A.G. Edwards analyst Brian Postol, Home Depot "is a retailer with the culture, management and productivity to once again generate 20% to 25% annual earnings growth" over the next three to five years. HD should benefit from falling interest rates, as homeowners refinance and use the interest savings to putter around their houses. Profits should climb 10% this year, to $1.10 per share.

Johnson & Johnson (JNJ). One of the great names in health care, J&J's shares are down 13% from their late-December highs. The company recently agreed to buy Alza, a developer of drug-delivery systems, for $10.5 billion. Alza would give J&J a much stronger pipeline of new drugs under development and, says J&J, add 1.5 percentage points to its revenue growth rate from drugs over the next five years. Earnings are expected to grow 12% this year, to $3.84 per share, putting the stock's P/E ratio at 24.

J.P. Morgan Chase (JPM). When J.P. Morgan and Chase Manhattan merged in December, analysts worried about how well these financial-industry giants would integrate their operations. More recently, the tanking market has raised concerns about the company's investment-banking and trading arms. The stock, at $45, is down more than one-fourth from its high and sells at just 13 times estimated 2001 earnings of $3.50 per share. Meanwhile, the merger is progressing more smoothly than expected and the company should benefit from falling interest rates. J.P. Morgan Chase is "the blue-chip name in financials," says AIM Value manager Evan Harrel. (For another take on J.P. Morgan Chase, see "Against the Grain".) --BRIAN P. KNESTOUT