Four pros and the trampled stocks they love

Kiplinger's Personal Finance Magazine, Nov, 1998

Ford at 40, Coke at 55," wished money manager and columnist James Cramer in thestreet.com as he wrote out a buy list while the market was toppling. In that spirit, four mutual fund managers identify great stocks that have been trashed during the downturn. Each pick was down at least 20% from its 52-week high.

Elizabeth Bramwell of Bramwell Growth fund favors Robert Half International, the world's largest provider of specialized personnel. Its divisions include Accountemps, Robert Half and OfficeTeam. Shares of Robert Half (symbol RHI, New York Stock Exchange, recent price $47) traded as high as $60 in June. Bramwell says companies are relying increasingly on temporary workers to fill accounting, paralegal and information-technology positions. Robert Half should be able to deliver earnings growth of 25% to 30% a year. And Bramwell considers it well priced at 28 times her 1999 earnings estimate of $1.65 per share. "This company is in the right industry at the right time," she says.

Gillette, a battered icon of the Nifty Fifty, is the choice of Ron Canakaris of Montag & Cald well Growth. Shares of Gillette (G, NYSE, $38), the maker of razors, toiletries and batteries, sold for as much as $63 in July. The stock has been hurt by concerns over slowing growth around the globe and the impact of unfavorable currency exchange rates stemming from the strong dollar. Canakaris thinks the Asian economies will bottom out early in 1999, currency fluctuations will be less of a problem in the year ahead and Gillette's businesses will display better trends soon. Also, the Mach 3, Gillette's latest razor, is selling well, says Canakaris. According to consensus estimates gathered by First Call, Gillette is expected to earn $1.59 per share in 1999, so the stock's forward price-earnings ratio is 24. Canakaris estimates Gillette's intrinsic value at $67 per share.

Edwin Walczak of Vontobel U.S. Value says he's found a value with Mercury General (MCY, NYSE, $38), which derives virtually all its revenues writing auto insurance in California. With a stock-market value of $2.1 billion, Mercury is the smallest of the four stocks featured here. Investors' distaste for small companies, plus growing concerns about the car-insurance business heating up in California, have combined to drive down the shares from $69 on July 21. Walczak, though, says he doesn't expect any "cancerous" premium price wars. Moreover, Mercury "is the low-cost provider of car insurance in California" because it does not have its own network of agents. The consensus of analysts is that Mercury will earn $3.58 per share in 1999. In Walczak's view, the company is worth $71 or $72 per share.

Shares of First Data (FDC, NYSE, $25), one of the world's leading providers of transaction-processing services for merchants and credit card companies, are down nearly 40% from a 52-week high of $40. But that's only one reason

Don Yacktman of Yacktman fund considers the stock so attractive. Problems the company has had with a contract for credit card processing in Hong Kong should be mostly behind it, says Yacktman. The company's Western Union money-transfer business is growing about 20% a year, while its merchant-processing and credit card services businesses are growing about 30% a year. "This is a company that really has the wind at its back long term," says Yacktman. First Data is expected to earn $1.78 per share next year, according to the consensus of analysts.