Which way's up?

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

Nucor Corp.

Nucor, a low-cost producer of steel joists, girders and beams, is a low-tech company and very hard to get excited about in a high-technology world. But it uses technology to its fullest for an efficient bottom line. It has a relatively new plant in Charleston, S.C., and plans one in North Carolina. It has very strong management led by CEO John Correnti. With a strong balance sheet and significant growth potential the next five years, Nucor makes a strong value play and core holding for any portfolio.

Pharmaceutical Product Development Inc.

A leader in pharmaceutical and biotechnology contract R&D, PPDI's revenues are growing at an annual rate of 30%. Its customer base includes 24 of the world's 25 largest pharmaceutical concerns. Only $3 billion of the $35 billion in pharmaceutical R&D each year is outsourced, but hat's growing rapidly as outsourcing gets better and more economical. The stock is more than $20 below its 1996 high of $47. Earnings of 80 cents to 85 cents per share this year should grow more than 30% next year.

Martin Marietta Materials Inc.

Revenues should exceed $1 billion. With aggressive acquisitions, it is growing its construction-aggregate revenues 20% a year, from more than 250 quarries in 20 states. Federal highway legislation, increasing spending 44% for the next six years, should ensure a favorable environment. Strong management and consolidation should allow MLM to strengthen its position as the second-largest U.S. aggregate producer. After-tax margins of 10.9% last year were among the highest of North Carolina public companies. 1998 earnings should be $2.40 per share, with preliminary estimates of $2.85 in 1999.

United Dominion Industries Ltd.

Concerns about the global slowdown have cut UDI's shares in half. However, this diversified manufacturer should still earn $2.15 to $2.25 per share this year. Earnings from 87 locations in 18 countries should increase again in 1999, as revenues exceed $2 billion. UDI has a very strong cash position and has been aggressively repurchasing its own shares. The common stock seems undervalued, with its price-to-future-earnings ratio at 40% of the S&P 500 average.

Quintiles Transnational Corp.

Major drug, biotech and medical-device companies want the cost benefits of outsourcing, and Quintiles has emerged as the global contract-research leader. In the recent market tumult, the stock has pulled back some, but it offers excellent upside opportunity. Earnings per share should be $1 in 1998 and $1.40 in 1999, so the stock offers 40% growth but is trading at only 32 times the '99 estimate. Given the industry's potential and Quintiles' leadership, it should trade at a premium. The one-year target is $56. This is a good long-term investment. The aging population supports the need for increased drug R&D, and the lower cost of capital means drug and biotech companies can finance more projects.

Lowe's Cos.

Lowe's has emerged as a national force in home improvement. The stock has come back more than 20% from its early summer highs. In the low $30s, Lowe's is very attractive. Consensus earnings are $1.30 and $1.55 over the next two years, and a price-earnings ratio of 20 times next year's projection is a bargain. Interstate/Johnson Lane doesn't forecast a recession, yet one seems to be priced into the stock. The shares could trade at $45 to $50 over the next 12 to 18 months. Lowe's is virtually unaffected by the varying global economies and benefits from declining interest rates and low mortgage costs domestically. The Southeast's positive demographics also figure in.