Portfolio: stocks on the mend

Kiplinger's Personal Finance Magazine, March, 1998

Cliff Fox, manager of PIMCO Renaissance (800-227-7337), selects stocks of midsize companies that have been out of favor but whose prospects have begun to perk up.

ECHLIN

(symbol ECH, New York Stock Exchange, recent price $36). Though its stack has done nothing for four years, this producer of car parts for both automakers and the after-market is "poised for better days ahead," says Fox. New management took over a year ago and soon announced a restructuring program and some asset sales. Further cost-cutting is likely as the company works aggressively to trim inventories, which will help reduce interest costs. The consensus earnings estimate for the fiscal year ending August 31, according to Zacks investment Research, is $2.28 per share.

FREMONT GENERAL

(FMT, NYSE, $51). One of the nation's largest underwriters of worker's compensation insurance, Fremont also provides medical malpractice insurance and other financial services. Management has a superb record of controlling costs, says Fox. The company, which recently bought Xerox's workers-comp unit, is on the prowl for more acquisitions. With an improving competitive environment in California, its biggest market, and a fast-growing financial-services division, says Fox, the stock seems cheap at less than 13 times the 1998 consensus earnings estimate of $4.10 per share.

MARTIN MARIETTA MATERIALS

(MLM, NYSE, $37). The nation's second-largest producer of aggregates -- a fancy term for sand and gravel used in construction -- should see increased demand for its products. As the federal budget approaches a surplus, more money may become available for infrastructure projects. Office vacancy rates are low enough to spur new construction. And the drop in interest rates should support robust new-housing construction. Fox also expects MLM to grow by buying up rivals in this highly fragmented industry. Analysts expect earnings per share of $2.38 in 1998.

TANDY

(TAN, NYSE, $34). The parent of the Radio Shack chain-which includes nearly 5,000 company-owned stores and almost 2,000 franchises-is selling Sprint PCS phones. That should help widen profit margins in 1998. It's a good business, says Fox, because Tandy collects a regular fee from Sprint as long as Sprint keeps the customer. The spinoff of Tandy's troubled Computer City unit should take place this year. Also, says Fox, Radio Shack was hurt last Christmas shopping season by a paucity of underpersonal $1,000 computers. Radio Shack sales should get a boost soon when that problem is fixed, says Fox. Given an aggressive stock-repurchase plan, Tandy looks attractive at 16 times the consensus earnings estimate of $2.13 per share. te.

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