Thanksgiving basket from Legg Mason Health care prominent on 12-stock list

November 26, 1996|By Bill Atkinson | Bill Atkinson,SUN STAFF

A textbook publisher, a rubber stopper maker and a manufacturer of cutting tools might not sound like sexy businesses, but the executives at Legg Mason Inc. expect them to be winners.

The Baltimore-based brokerage and investment banking firm yesterday included them and others on its 19th annual Thanksgiving list of a dozen stocks that it will recommend to clients.

It also introduced the Legg Mason Value Portfolio, which will initially hold the 12 stocks on the Thanksgiving list. The portfolio, however, will grow to as many as 20 stocks that can be bought and sold, unlike the Thanksgiving list, which doesn't make trades once the stocks are selected.

"Health care" are the key words for Legg's 1997 Thanksgiving list.

Three of the 12 stocks making the list are health-care-related companies.

"We clearly think from our list that health care is a very attractive area," said Richard E. Cripps, Legg Mason's director of equity marketing. "It has been out of favor with Wall Street. We believe that it offers very good growth prospects going forward."

The health industry companies on the list are:

Nashville-based Columbia/HCA Healthcare Corp., the country's largest hospital company, and one of the largest providers of health-care services.

Downers Grove, Ill.-based HealthCare Compare Corp., which runs the country's largest preferred-provider organization for the group health and workers' compensation needs of large, self-insured companies.

Integrated Health Services Inc. of Owings Mills, one of the nation's largest home health-care providers.

"We think that these stocks are undervalued relative to the overall market," Cripps said. "They offer less risk to the overall market."

The strategy followed by Legg Mason managers is to seek out companies that they consider bargains with the hopes that their prices will rise.

"We really went for companies that have good balance sheets," Cripps said.

One of those companies is Regal-Beloit Corp., which makes power transmissions and expendable cutting tools. The company has little debt, $149 million in equity and $23 million in cash.

"Their earnings growth has been understated," Cripps said. "We think earnings are going to accelerate."

Another is Figgie International Inc., which makes electronics products for the defense industry and thermometers. It's the cheapest stock on the list with a 52-week range of $16.38 a share to $9.88 a share.

"It's just very cheap selling at six times earnings," Cripps said. "It is the essence of a value stock."

Legg has beaten the Standard & Poor's 500 stock index 13 times over the last 18 years since it began the Thanksgiving tradition. And its list has return on average 26.2 percent, which includes dividends reinvested, and excludes transaction costs, compared with the S&P's 17.5 percent.

But last year Legg suffered from the "buy and hold" rules that govern the Thanksgiving list. It returned 17.6 percent compared with the S&P's 27.2 percent, when DSC Communications Corp. dragged down its performance. Legg put the company on its list when the stock was trading at $38.25 a share, but within months it had plunged to $13.75 a share.

Legg managers and their clients would have normally bailed out of DSC, but the rules prevented them from doing so. They won't be hamstrung with the Value Portfolio. It will initially hold the 12 stocks from the Thanksgiving list, but the managers can add and drop companies. Legg's clients will be kept up to date when additions or deletions are made.

Cripps; Robert A. Frank, director of research; and Judith M. DeHoff a supervisory analyst, are among the Legg officials who will monitor the portfolio.

"It will be a good test of value-added management," Cripps said.

Legg Mason's Thanksgiving list

.... .... .... .... .... .... . Ticker .... 11/21/96 ..... 52-week

Company .... .... .... .... ... symbol .... price ..... .... range

Columbia/HCA Healthcare ... ... COL ... ... $38.13 ... $39.50-31.33

Figgie Intl. (Cl. A)* ... ... . FIGIA ... .. 12.63 .... 16.38-9.88

Finova Group Inc. ... ... ... . FNV .... ... 65.00 .... 66.13-44.63

Fisher Scientific Intl. Inc. .. FSH ... .... 46.50 .... 46.88-32.25

HealthCare Compare Corp.* ... . HCCC ... ... 43.00 .... 53.00-36.00

Houghton Mifflin Co. ... ... .. HTN .... ... 51.75 .... 52.50-39.63

IES Industries ... ... ... .... IES ... .... 30.25 .... 34.75-25.50

Integrated Health Svcs. Inc. ...IHS ... .... 22.88 .... 28.75-19.63

Regal-Beloit ... ... ... .... ..RBC ... .... 18.75 .... 23.13-15.50

Tecumseh Prod. Co. (Cl. A)* ....TECUA ... .. 57.13 .... 60.25-48.75

Waban Inc. ... ... ... ... .... WBN ... .... 25.75 .... 28.00-17.88

The West Company .... .... .... WST ... .... 27.50 .... 30.00-22.13

* Legg Mason Wood Walker Inc. makes a market in this security.

Pub Date: 11/26/96

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