Adobe SystemsAdobe Systems (OTC, ADBE, $40.25) is one of...

STOCK WATCH

July 22, 1992|By Opinion on stocks offered by investment expert. Compiled by Steve Halperm for Knight Ridder.

Adobe Systems

Adobe Systems (OTC, ADBE, $40.25) is one of Shearson Lehman Brothers' midyear list of "Ten Uncommon Values."

"Adobe Systems produces graphics software for printers and computers. Its growth has been fueled by the rapid growth of laser printers and the fact that graphics is the fastest-growing area in personal computer software. Adobe is creating an impregnable franchise that deserves a premium valuation. The company generates strong cash flow, and has a debt-free balance sheet. Our 12-month target is $80 per share. We estimate the downside risk at $40 per share. Adobe shares are volatile, so the stock carries a high-risk rating."

AutoZone Inc.

Also on Shearson's list is AutoZone Inc. (NYSE, AZO, $28.625).

"AutoZone is a leading auto parts retailer. We view AutoZone as the growth leader in do-it-yourself auto-parts retailing, with a superior format, excellent execution, and projected long-term earnings growth of at least 25 percent a year.

"Expansion potential abounds, with stores in only 20 states and with 50 percent of the stores in just five states. We believe this is a great opportunity to buy this premier retailer. Our target price is in the low 40s. We see the downside risk to $23. Our moderate-risk rating reflects the stock's above-average P/E multiple."

Federated Stores

Another Shearson pick is Federated Department Stores (NYSE, FD, $13.25).

"Federated Department Stores operates 220 full-line department stores including Bloomingdale's, Jordan Marsh and Burdines. Federated was in Chapter 11 beginning in 1990 (due to high debt assumed under Robert Campeau), but successfully emerged in February 1992. We believe Federated can be one of the more successful turnaround stories in retailing. Our target price is $18. We see the downside risk at $10 if the economic recovery falters and consumer spending worsens. Because the department store industry is cyclical and seasonal, we have assigned this stock a high-risk rating."

Royal Dutch

Shearson also includes Royal Dutch Petroleum (NYSE, RD, $87.75).

"Royal Dutch Petroleum owns 65 percent of the Royal Dutch/Shell Group -- the largest international oil company in the world. Its dominance of the international oil industry should assure long-term growth. It is perhaps the safest investment in the oil industry. Royal Dutch should consistently continue to return 15 percent to 20 percent annually. Our 12- to 18-month target price is $110. This is a conservative evaluation. We believe the downside risk in the stock is to $80. We have assigned these shares a low-risk rating due to the company's exceptionally strong balance sheet."

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