best stock boosters, The

Global Finance, Feb 1999 by Lanchner, David

Despite the volatility of 1998, European and US exchanges ended the year sharply higher, although with some unusually disparate results among sectors and stocks.

Many poor performers were in the wrong places at the wrong time: Companies with a Latin American or Asian focus suffered greater whiplash than competitors with little exposure to emerging markets. No matter how well natural resource companies were run, virtually nothing could boost stock prices during the worst commodity deflation in 21 years. In the financial services sector a narrow focus that did not include investment banking tended to separate winners and losers.

As always, bold restructurings, spin-offs, consolidations, new industrial partnerships, and innovative products promising fundamental change served as catalysts for rises in share price. Another big booster: the force of personality as investors bet big on individual CEOs with track records.

1 Aegon:Up 151% versus 29.8% for AEX Index

Eschewing bancassurance in favor of high-margin life insurance paid off big for the world's fifth-largest insurer by net income. "Aegon is probably the only pure-play life insurance company in the world," says Bear Stearns analyst Jason B. Zucker in New York, explaining why The Hague-based company's stock rose so sharply last year. While competitors, such as ING, were hurt by volatile investment banking activities, Aegon is on schedule to register a 2.75 billion guilder ($1.46 billion) profit in 1998, a 25% gain over the previous year.

Also, instead of trying to cover the globe as competitors have done, Aegon chairman Kees J. Storm has focused on the United States, Great Britain, and the Netherlands, which will account for more than 90% of revenues in 1998. A dyed-in-the-wool contrarian who became chairman in 1993, Storm insists flatly: "There will be no single Euroland in insurance:'A patchwork of national tax laws and social security systems will prevent a pan-European insurance market for the foreseeable future, he believes. Storm pushed US life insurance net 75% higher, to 662 million guilders, in the first nine months of 1998 after buying Providian for $3.6 billion in 1997 and consolidating its life insurance operations with Aegon's.

2 Grupo Modelo: Up 20.9% versus -24.3% for the Mexican bolsa Mexico's largest beer company registered the only positive return in both pesos and dollars for any Mexican stock in 1998.The secret of Modelo's success is brilliant marketing, a powerful foreign partner, and a conservative balance sheet.

Controlled by the founding Fernandez family, which fled Spain during the Spanish Civil War, the Mexico City company has a 55% share of the domestic market and makes Corona, the beer that dethroned Heineken in 1997 as the number one import in the United States. Since 1995 Modelo has been helped in the United States by beer giant Anheuser-Busch, which bought 50.2% of the company for a total $1.6 billion between 1995 and last fall. CEO Carlos Fernandez, father Antonio, currently chairman, and their allies retain voting control with only 37% of Modelo.

An estimated 23% of 1998 sales came from exports, up from 10% in 1994, with 85% going to the United States. Analysts say that more than makes up for any slowdown in domestic demand. But as Mexico's currency slid 10% in August and short-term interest rates rose to 27%, Modelo, unlike other Mexican consumer goods companies, saw its peso profits widen. "We are a debt-free company, and we continue our capital expenditures with our own resources," says Carlos Fernandez. Modelo and its only competitor, Fomento Economico Mexicano, also pushed through an average 24% price increase a year ago. That boosted Modelo's profit margins to 26%, from 23%, and will allow the company to beat inflation two years in a row

3 Formento de Construcciones y Contratas: Up 74% verus 45% for the IBEX 35

The stock of the Barcelona-based construction, waste management, and water services company was 8% off its 1998 opening.Yet in September, its shares began skyrocketing, when Esther Koplowitz, the founder's daughter, struck an agreement to sell 49% of &1998, FCC's holding company, to Paris-based Vivendi. Since becoming chairman in 1996, Jean-Marie Messier had sold noncore assets worth FFr75 billion ($13.3 billion) and purchased satellite TV giant Canal Plus, transforming Vivendi into a water services and media group with double-digit annual earnings growth.

While Koplowitz still owns 51% of B-1998,which still owns 56.5% of FCC, Messier is clearly in chargehe's named half of FCC's board and sold Koplowitz a 10-year put on her remaining stake, to be priced according to FCC performance in the intervening period.

As part of the Ptas130.5 billion ($904.3 million) purchase, FCC is buying Vivendi's Spanish water and waste management activities for Ptas53 billion ($372 million) and combining them with its own operations, giving it 70% of Spain's waste management market and 30% of its water market. To improve return on capital employed, half of FCC's construction operations and virtually all its real estate holdings will be sold as part of the deal. Analysts say net profit could rise 30% in 1999, from last year's estimated Ptas16.1 billion.