Brokers prefer blue chips

With many stocks priced low, brokers say, it's a good time for investors to get into the market.
By CYNTHIA VINARSKY
VINDICATOR BUSINESS WRITER
YOUNGSTOWN -- Valley stockbrokers participating in The Vindicator's 2002 stock survey contest are taking fewer risks than their predecessors and relying more on very recognizable blue chip stocks as they vie for the best year-end result.
Technology stocks, which predominated participating brokers' picks a few short years ago, have been delegated to one-third or less of the contestants' mock portfolios.
In the stock survey, a Vindicator business page tradition for more than a decade, five area financial advisers are asked to choose three stocks and to predict how the Dow Jones Industrial Average will close at year's end. The stocks' performance is evaluated a year later.
Some advice: All five participants agreed to participate with the caveat that they would never advise clients to limit their investments to just three stocks, nor to judge a stock's performance on a single year.
Brent Nelson, a stockbroker for WRP Investments Inc. in Liberty, echoed the other participants when he said diversification of assets and long-term investing is still the safest way to weather any financial storm and make money.
They were unanimous, too, in projecting an upswing in the national economy that will be reflected in the stock market, and most based some of their stock picks on the prospect of an economic turnaround.
This is an ideal time to buy stocks, the brokers said, because even many Fortune 500 companies with strong track records are priced low.
Nelson's first stock pick was America Online Time Warner, best known for its Internet service but now a media and publishing company as well since its recent merger with Time Warner.
AOL, which trades on the New York Stock Exchange, has more than 33 million subscribers worldwide, he said, and it's likely to see advertising revenues grow when the recession ends. The stock is priced at just over half its 52-week high in 2001.
Nelson picked Washington Mutual, a financial stock trading on the NYSE under the symbol WM, because the company is cash-rich, well diversified and has been involved in several acquisition deals.
Analysts are projecting the company will grow 10 percent in the next year, he said, and it also pays healthy dividends.
Finally, Nelson chose General Electric, a giant industrial conglomerate with a strong credit rating. GE, which trades on the NYSE, saw its stock price plummet a share after the Sept. 11 attacks and it's still low enough to be considered a good buy, he said.
Other choices: Scott Schulick, a broker for Butler Wick in Youngstown, picked J.P. Morgan Chase & amp; Co., one of the nation's largest financial service companies, and Home Depot, the top home improvement retailer.
Large financial institutions like J.P. Morgan Chase generally lead the pack in showing profits when a sluggish economy makes a comeback, Schulick said, and see loan totals grow when interest rates drop. The stock, which trades under the JPM symbol on the NYSE, is priced well below its 2001 high.
Schulick said Home Depot, trading under HD in Nasdaq, owes much of its success to an emphasis on hiring trained and experienced people to staff its home improvement stores.
Low interest rates also bode well for the chain, he said, because they free up more consumer cash for new home building and home remodeling.
The success of the Harry Potter craze prompted Schulick's third choice. He picked Scholastic Corp., a publishing company trading under SCHL on Nasdaq, partially because it has the publishing and distribution rights for the Harry Potter books.
Roger Faubel, a broker for Dow Financial Services in Boardman, avoided blue chip stocks and chose instead three little-known companies which he expects to do well when the economy bounces back.
Capstone Turbine Corp., a maker of turbine engines to produce electricity with natural gas, and Ariba Inc., a software business that manages online commerce between businesses, are two Faubel picks.
Capstone, trading as CPST on the Nasdaq, dropped more than 80 percent in value last year, from a high of $47.38; Ariba, which trades as ARBA on Nasdaq, dropped more than 88 percent from its high of $59.23 in 2001.
Triple expected: Faubel said General Motors is one of the first to take advantage of Capstone's new technology by installing the turbine engines in its car dealerships in California, and he expects the company's stock values to triple by December.
Software companies like Ariba will also see growth, he said, when the economy starts to improve and businesses resume the capital improvement projects they've been putting off.
Faubel's third choice was NBTY, a maker of vitamins and herbal supplements that he said had $800 million in sales and $42 million in profits last year.
"NBTY is the largest manufacturer of vitamins in the U.S., and people take vitamins. There you have it," he said.
Flannoya Franklin, an investment representative in the Liberty office of Edward Jones, also chose Home Depot. The home improvement industry is projecting a 5 percent increase in business over the next five years, he said, but Home Depot, the top retailer in that category, is expected to grow 19 percent in that same period.
Franklin picked NVIDIA Corp., a designer of three-dimensional graphics used in video games produced by Microsoft, IBM and Toshiba. Americans are staying home more and playing computer games more than board games, he said, so NVIDIA's business is bound to grow.
The stock, which trades on Nasdaq under the symbol NVDA, was selling for $66.90 at year's end, up 308 percent from its 52-week low.
Franklin also picked Advance PCS, which serves the health care industry with prescription management, online prescription sales and other streamlining programs.
He said the company, which trades as ADVP on Nasdaq, should capture a larger market share as health care companies strive to cut costs and reduce waste.
Ralph Fajack of McDonald Investments in Canfield picked two well-known companies with proven track records, General Electric and Exxon Mobile. He said GE's diverse holdings keep its performance steady.
Exxon, which trades as XOM on the NYSE, is priced low now along with most commodity stocks, but he believes it will climb as the economy strengthens.
Finally, Fajack chose Oracle, a system software producer which closed out the year at $13.81, far below its high last year. "Oracle should be one of the first to benefit when the economy picks up," he said.
He said the most profitable time to buy stocks is about six months before an economic recovery.
Fajack cited historic precedent to support his view that an economic recovery will come this year -- he said the recent, two-year decline in the stock market is unusual.
"If history repeats itself, we should be seeing some positive changes."
vinarsky@vindy.com