Which way's up?

Business, North Carolina, Jan 01, 1999 by Frew, Alex

You'd think faith in small North Carolina companies would return sooner or later, given the Southeast's population and economic growth. Lynch at Interstate/ Johnson Lane, which Wachovia plans to buy, launched a unit investment trust in September to invest in Southeast-based companies. He sold it not only on the strength of the region's economy but on the theory that the baby-boom generation's investing and the technology revolution will boost stocks here. For his panel picks he favors two companies buffered from foreign economic woes and a growth stock in a hot industry, drug contract research.

The panel's picks this year don't favor any particular industries. There's a smattering of high-tech stocks interspersed with North Carolina's old mainstay, manufacturing. As has become custom, drug contract-research companies attracted the fancy of two pickers. Some panelists hedged their bets by choosing stocks they figure will hold up in an economic downturn, such as Smith's pick of Food Lion Inc.

Two traditionally hot investments, the former NationsBank Corp. (now BankAmerica) and Lowe's Cos., were the most popular. Both companies expanded to the West Coast in the past year, and both piqued three pickers' interest. Lowe's also posted the best stock gain of all large companies in the state last year, 59.8%.

One pattern emerges: The panel's selections skew toward large companies. New York Stock Exchange picks outnumber NASDAQ stocks 2-to-1. Nationally, blue chips and other large stocks have held up better amid the foreign economic crises, despite their overseas ties. In North Carolina, with textiles and other manufacturing exporters, Green says, "we've got enough companies with global exposure that we're feeling it." But he sees signs of recovery in South Korea and a couple of other Asian countries. Besides, the weakness overseas could turn out to be a plus for the U.S market. "It will be difficult for all of us to go down at the same time."

Perhaps that's why the panelists are banking that out-of-favor stocks will bounce back. Most of the picks are well off their highs. Half the 18 recommendations are closer to their 52-weeks lows than to their highs. Hey, things can't get much worse. Right?

BankAmerica Corp.

With BankAmerica, NationsBank creates the largest bank in the country, practically eliminating acquisition risk. There should be no near-term dilution, and investors can expect strong earnings growth in 1999 and price-earnings expansion. There should be cost savings with the merger, and BankAmerica is primed for international growth as well as growth in all financial sectors. Earnings growth above the bank average makes this an exceptional time to buy this well-aged institution.

Burlington Industries Inc.

Burlington, one of the world's leading textile manufacturers, has been cheap for a long time. Earnings on a year-to-year basis are up for eight consecutive quarters. It's well-diversified, so it can increase or decrease production according to market demand. It is extremely well-managed, and the stock is down from $18.44 in May while revenues and earnings are increasing.