Thanksgiving List offers select stocks

LEGG MASON'S INVESTMENT ENTREE

November 23, 1993|By David Conn | David Conn,Staff Writer

As millions of Americans prepare to feast on football and fowl, Legg Mason Inc. yesterday served up its 15th annual Thanksgiving List, a selection of a dozen stocks that historically has left investors' portfolios fatter than Legg's mutual funds.

Many investment firms offer selected stock portfolios for their clients at various times of the year. Legg Mason's has attracted a following beyond the company's regional base, probably because of its consistent performance: The list has bettered the Standard & Poor's 500 index 12 out of the 15 years since its introduction, with a 28.7 percent average annual return, compared with the S&P's average 16.9 percent annual return, assuming reinvestment of dividends in both cases.

Last year's list was no slacker. The Legg Mason portfolio gained 46.8 percent, compared with a 12.4 percent increase by the S&P 500.

"One of the reasons why I think it usually does well is a value research house like Legg Mason a lot of the time looks for end-of-the-year bargains," said Kent Croft, president of Croft-Leominster Inc., a Baltimore investment firm. "And that works pretty well because a lot of stocks get sold off for tax purposes and then take a bounce [upward] later."

A word of warning to the "buy-and-hold" crowd: Starting two years ago, Legg Mason decided to make the Thanksgiving List a "managed" portfolio, meaning the company began to replace stocks during the year that either exceeded the target price or ran into unforeseen problems. In fact, all but two of last year's original selections were sold during the year, and three of the replacements were replaced.

"That's a reflection that it's essential all the time to try to stay on top of all your stocks," said E. Robert Quasman, Legg's director of research, who compiles the list each year from the company's broader list of 50 or 60 recommended stocks.

Nevertheless, investors who put an equal amount of money in each of the 12 companies that comprised last year's Thanksgiving List and held them for one year also would have come out ahead: the "unmanaged" list gained 23.1 percent during the year.

Most of this year's picks fall into one of several broad categories that reflect aspects of Legg Mason's investment philosophy, Mr. Quasman said:

* "Beaten-up stocks," where the consensus expectations are low. These include American Pacific, the leader in hard-to-handle specialty chemicals; IMO Industries, a manufacturer of pumps, compressors, turbines and the like; Porta Systems, which makes telephone connection and testing devices; and Waban Inc., a warehouse retailer that runs the BJ's and Home Base chains.

* Relatively unknown companies. These include Younkers Inc., a Midwest-based department store chain; Independent Bank Corp., a Massachusetts regional bank holding company; and HUBCO Inc., a New Jersey retail banking company.

* Above-average performers with continued strong prospects, such as Bausch & Lomb Inc., the leading maker of eye, dental and hearing devices; and Octel Communications Corp., the world leader in telephone voice processing systems.

Though the Thanksgiving List tends to outperform the broader market, it's unlikely that many investors actually enjoy its benefits, several investment professionals said.

"Very few people would go out carte blanche and buy 100 shares of each, or $1,000 worth," said Ed Boyer, president of Portfolio Consultants Inc., a Baltimore company that helps clients find suitable investment managers.

"The client would tend to ask, 'Which of those is the best?' " he said. "Consequently you'll narrow your approach," and therefore the chances of succeeding through diversification.

Alex Fisher, marketing director of Calvert Investment Counselors, agreed.

"I just think it's a hard decision for people to make a total commitment to buy 12 securities in equal amounts," he said. "It just doesn't happen."

Those who took a broader approach by investing in Legg Mason's 10 mutual funds haven't had nearly as much reason to be thankful. Of the seven funds rated for their recent one-year performance by the Wall Street Journal, none was in the top 20th percentile of funds with similar investment objectives, and only two performed among the top 40 percent of their peers.

Four ranked in the top 60 percent, including the company's flagship Value Trust, and one was in the bottom 20th percentile.

None came close to the managed Thanksgiving List's performance in the last year, prompting Mr. Fisher to wonder, "If the Thanksgiving List is so good, why don't they have a mutual fund that's made up of the stocks on the list?"

Actually, Mr. Quasman admitted, the company has considered doing just that: either setting up a unit trust that invests in the full list each year, or a more traditional mutual fund that allows the fund manager some leeway to replace stocks as conditions warrant.

Don't expect an offering any time soon, though, he said, adding that anyone interested in enjoying the full benefits of the managed Thanksgiving investment list is welcome to become a client.

THANKSGIVING LIST

Company .. ... ...Price

American Pacific* $14 3/4

Bausch & Lomb Inc. 52 3/4

Beverly Enterprises 11 3/4

Houghton Mifflin 47 1/4

HUBCO Inc.* 22

IMO Industries Inc. 7 5/8

Independent Bank Corp.* 4 3/4

Octel Communications* 26

Porta Systems Corp. 11 Shawmut Nat'l Corp. 20 7/8

Waban Inc. 12 1/2

Younkers Inc.* 25 1/2

* Legg Mason Wood Walker Inc. makes a market in these securities.

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