Bargains arise when stock prices fall


November 17, 1997|By Bill Atkinson

THE STOCK market's dive since it hit a record high in August has left a wide path of battered companies.

High-flying technology firms like Dell Computer Corp. have been smashed. So have banks like Citicorp, health care companies, chemical companies and mining concerns.

The market is still volatile and dicey, experts say, but now is the time to swoop in for bargains. And there are plenty of them, from real estate investment trusts to small banks to health care firms. There are even some enticing deals among technology stocks, they say.

"The question that you ask yourself is what is being mispriced in this correction?" said Bob Smith, portfolio manager for the T. Rowe Price Growth Stock Fund, which has $3.9 billion in assets under management. "Which good companies are still going to have growth through this?"

Smith has been cautious for the past couple of weeks, but now he's more confident.

"I'm buying more with conviction than I have in the past, but the markets are so volatile," he said.

Smith likes a handful of technology companies even though the sector has been pounded over concerns that it has too much exposure to troubled Asian countries.

McAfee Associates Inc. is one of his favorites. The Santa Clara, Calif.- based company specializes in protecting computer systems from viruses.

But its stock has fallen nearly 42 percent from its 52-week high in July to the $45 range. McAfee dominates the anti-virus business, and Smith sees brisk earnings over the next two years.

"If you look at what is happening on the Internet, now every PC is exposed," Smith said.

Computer maker Dell is another technology company Smith likes. It is trading in the $79 range, down from a 52-week high of $103 on Oct. 16 -- a 23 percent drop.

It has slipped on fears that it has business dealings with Asian countries, and that competitors are coming out with far cheaper computers for consumers.

Dell, however, has little business overseas and its primary customers are corporations, Smith said.

"Dell's growth opportunities have not been that affected," he said. "I think it is a pretty good price."

Apparel makers like Tommy Hilfiger Corp. have been smashed, too, but Smith sees a few blue-light specials in the sector.

He is fond of St. John Knits Inc., an Irvine, Calif.-based company that sells high-quality and high-priced women's clothing and accessories.

The stock is trading in the $39 range, down from a 52-week high of $54.50 in June. Smith says the company is well-managed and should grow at 20 percent a year.

"Even if the market contracts, rich women are still going to buy" dresses, he said.

Gil Knight, a principal with Allied Investment Advisors Inc., a Baltimore-based subsidiary of First Maryland Bancorp, likes domestic companies that have little to do with relying on Asia for exporting their products.

He likes Phoenix-based PETsMART Inc., which operates 320 pet food and pet supply stores in 34 states. It has suffered losses recently, and shares have fallen to the $7 range from a 52-week high of $26.50.

But what impresses Knight is that management is completely new and it is reviving the company.

"I think this thing is really cheap," Knight said.

Richard Cripps, market strategist with Baltimore-based Legg Mason Inc., sees deals in health care and technology.

Integrated Health Services Inc. of Owings Mills is a nationwide leader at providing health care services to people in their homes and in its own facilities.

"It is cheap at 10 times earnings, but more importantly, it has got good longer-term growth in earnings of 15 percent plus," Cripps said. "We like them quite a lot."

Integrated Health trades in the $31 range, down about $8 a share from its high in July.

Cripps' choice for the biggest steal is BDM International Inc., a McLean, Va.,-based technology firm and former defense contractor.

It is trading at about $20 a share, down about $8 from its 52-week high in January.

The stock could get a boost if BDM wins contracts to convert computers for the government so they perform properly at the turn of the century.

"They have been very good at winning this type of business," Cripps said. "I think they have the right combination of skills here to be a major winner of business in that end."

Pub Date: 11/17/97

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