Investing in 1994: WINNERS & LOSERS
WHAT DO WORK BOOTS AND ISTANBUL HAVE IN COMMON?
No question about it: 1993 had a lot of drama, and it wasn't only from the market's new highs in December. Rags turned to riches, riches to rags. Oddball companies such as Fibreboard and Cellular Technical Services dribbled along, only to take off thanks to some pivotal event such as a legal settlement or contract announcement. Meanwhile, companies such as British transportation giant Tiphook and a California real estate investment trust plunged when bad judgment, bad times, or both set things askew. As for the funds, some of the top performers, such as gold funds, were likely one-time wonders. Meanwhile, stodgy old lumber stole the commodities crown. Here's the scoop:
BEST NYSE STOCK. Timberland Co.'s sturdy work boots and clothes have always been fashionable with outdoorsy types. But a sudden swing in footwear fashion, away from athletic shoes to the rugged look, has sent the now trendy bootmaker's fortunes soaring and its stock up 280%. Timberland stock started the year at 19 1/2, well above the minimum $5 a share benchmark for BUSINESS WEEK's best and worst awards. Net earnings surged by an estimated 78%, to $23 million, on a 47% sales jump, to $427 million. Next year, analyst Steven B. Frankel of Adams, Harkness & Hill Inc. in Boston, sees a 60% leap in profits.
The Hampton (N.H.) company, controlled by the Swartz family, was plagued by erratic customer service and high costs until new Chief Operating Officer Jeffrey B. Swartz, 33, cut costs--and prices--while improving deliveries and giving marketing a good swift boot.
WORST NYSE STOCK. Tiphook PLC is a high-flying container-leasing and transport-
rental company that grew too fast, got caught in the global recession, and crashed with a bang, its stock falling 83%.
Despite these woes, Tiphook's public statements were upbeat. It issued debt three times early this year. But soon after that, it announced a pretax loss of $33 million on sales of $490 million for the year ended Mar. 31. The company blamed the losses on interest-rate swaps and foreign exchange hedges. It may also have to sell its vital container division, and it faces insider-trading allegations and shareholder lawsuits.
BEST AMEX STOCK. When John D. Roach took over as chief executive of Fibreboard Corp. in 1991 after a shareholder revolt ousted the previous management, the wood-products company seemed headed for the buzz saw. It was plagued by weak operations and billions of dollars of asbestos-related suits. Roach axed bad assets, whittled staff, and spruced up management. But investors stayed wary until last August, when Fibreboard settled with its insurers. They agreed to pay $3 billion in claims filed by some 325,000 people allegedly injured by asbestos products Fibreboard made decades ago. Lifting that burden freed the underlying value of Roach's turnaround, and the stock jumped 358%.
WORST AMEX STOCK. Investors in Angeles Participating Mortgage Trust had a rough year. The real estate investment trust--which held mortgages on three outlet centers--stopped paying dividends after its debt-laden parent, Angeles Corp., which owned the outlets, defaulted on the mortgages in February. Angeles Corp. is now mired in bankruptcy proceedings. But this may not be the last of the Angeles Trust: A company spokeswoman says it is liquidating, yet a private group is buying up shares. In this market, even sickly REITs may get a second chance.
BEST OTC STOCK. No matter that Cellular Technical Services Co. has been losing money for years. When news broke this fall that the obscure telecommunications company had pending contracts with giants Sprint Corp. and McCaw Cellular Communications Inc., CTSC went into orbit, soaring 395%.
CTSC makes software that collects real-time data on customer usage for cellular companies, a vast improvement over current systems. The losses stem from converting the research and development company into a strong marketer, says Chief Financial Officer Michael E. McConnell. CTSC should make money in '94, claims Seth Margoshus, an analyst at Whales Securities Co.--which underwrote the company's 1991 initial public offering. Margoshus sees CTSC as a pivotal tollbooth on the electronic highway, collecting regular fees from some 200 million wireless subscribers by the year 2000. But McConnell isn't making any predictions until contracts are finalized.
WORST OTC STOCK. S.K. Technologies Corp. stock barely squeaked by with its NASDAQ listing--it usually delists stocks trading below $1--after slipping 93%. The Boca Raton (Fla.) maker of cash-register software systems was in "very deep financial trouble" when CEO Calvin S. Shoemaker took over in May. He says the software "had more bugs than it should have." Shoemaker now claims to have stabilized the company and exterminated the bugs.
BEST STOCK GROUP. Is gold-mining finally panning out? It led the industry pack with a rise of 66.6%, according to Standard & Poor's Corp. Last summer's runup to more than $400 an ounce looked like a brief love affair when the metal slunk back to about $340 by fall. But prices have revived to range from $360 to $388 an ounce. Analysts attribute this to an improved balance between supply and demand (page 131). Investors dazzled by gold's showing should realize that gold stocks are much more volatile than the metal itself. That's because any price rise above production costs is pure profit to miners. Stocks also presage a fall in the metal, a little like the canary in the mine.
WORST STOCK GROUP. President Clinton's health-care plan has clearly made the health sector ill. The prospect of prolonged political debate has paralyzed it like--to steal T.S. Eliot's phrase--"a patient etherized upon a table." Nursing homes and drug companies led the losers in the Standard & Poor's 500-stock index. Medical-technology companies were the worst laggards according to Bridge Information Systems Inc. Doctors on a budget are sure to forgo pricey gadgets. Prescription drugmakers also face a bleak prognosis. But some issues are healthier. Analysts say nursing homes could represent a salutary buying opportunity since more people are living longer.
BEST EQUITIES FUND MANAGER. Caesar M.P. Bryan had the golden touch in 1993. His concentrated play in South African gold mines caused his $47 million Lexington Strategic Investments to jump 235%. Gold's buoyancy was crucial, but he says it helped to snap up smaller and less cost-efficient mines forsaken during the bear market, at fire-sale prices. But this is one volatile fund. Not only is it concentrated in a single country, but 50% of fund assets are in the top five holdings. Investors who are willing to play high stakes have to take the bad with the good. Says Caesar: "A lot of the great return for this year was a mirror image of the bear market in '92."
BEST BOND FUND MANAGER. Simon Nocera's $94 million G.T. Global High Income A fund soared 93% by investing in emerging-market debt. Emerging markets are hot this year, but not just any one will do. "There's so much euphoria about emerging markets, the more exotic you can be, the better," says Nocera, "but that's the wrong attitude."
What's most important, he says, is the fundamentals of the individual country. He closely examines factors such as inflation, unemployment, and government policy before buying only those countries that are clearly on the road to economic reform. Some faves: Argentina, Mexico, Poland, and Morocco. Why debt and not equity? Nocera explains that bonds precede stocks in the process of stabilizing an economy. Sounds pretty risky, but Nocera insists that with at most 15% of assets in any market, "the volatility is minor."
BEST COMMODITIES FUND MANAGER. For years, Thomas Shanks scraped by playing blackjack. Tired of the hand-to-mouth existence, he flew to Chicago and signed up as a trainee with legendary commodities trader Richard Dennis, whose technique focuses on market timing according to price signals.
In 1993, it paid off--in spades. Shanks's Chicago-based Hawksbill Capital Management earned a 103% return on the $106 million it manages for 25 different accounts. Last year, Shanks invested mostly overseas, making money on foreign interest-rate futures contracts in London, Paris, Sydney, and Singapore. Still, Shanks knows he may not be able to do it again. He is wary of "the hubris that the markets love to slap down."
BEST OVERSEAS MARKET. The Istanbul Stock Market is no turkey. It reigns as this year's hottest emerging-markets play, up some 80% in dollar terms. Istanbul is much larger than most bourses in Asia and Latin America, and it lists 160 stocks with a market cap of $35 billion. And with daily trading at about $90 million, it's more liquid than most markets.
Will the feast last? "We're looking for 10% growth in corporate profits in 1994, which is down from 35% this year," says Emre Yigit, head of research at Istanbul's largest broker, Global Securities. But he says that with the economy growing and stocks at just seven times estimated 1994 earnings, there's lots of room on the upside.
BEST COMMODITIES MARKET. What do spotted owls, low interest rates, a growing economy, and warm weather have in common? They made lumber one cool commodity, with prices up more than 50% after a roller-coaster year.
Environmental concerns such as a campaign to reduce logging to save the northern spotted owl and low demand drove inventories to near-record lows and prices down to $284.70 per thousand board-feet. But then housing starts perked up, and lumber prices peaked at $493.50 in the spring. "Wholesalers were in a hand-to-mouth supply situation. We had near-panic buying," says William B. O'Neill, futures strategist for Merrill Lynch Capital Partners. Prices fell in June but rose as the economy recovered and warm fall weather extended the building season. Prices hit $461 before settling near $430. Prices may rebound again if rates stay low and environmentalists active.Pam Black in New York, with David Greising in Chicago and bureau reports