The Postwar Portfolio One Pro Is Building Now

Investors still have a severe case of war nerves despite the market's powerful upswing after the U. S. and its allies launched their Jan. 16 attack on Iraq. Most pros believe that the market is still a mine field that could blow portfolios to smithereens. But not money manager Jim Awad, who was an aggressive stock buyer even before war broke out. He's still buying--for his "postwar portfolio."

As far as Awad is concerned, "the war is over, and America is the victor." Six months from now, investors who have fled stocks because of war jitters "will kick themselves for missing one of the greatest buying opportunities ever," says Awad, who manages $400 million as president of BMI Capital. BMI has had a compounded 20% annual gain over the past 10 years. Awad expects the market to have hit new highs by midyear and that "Iraq definitely will no longer be an investment issue." Plus, the economy will be well on the way to recovery, he believes.

Awad disagrees with the prevailing sentiment that the recession and the war's cost will combine to clobber the market. First, he argues, stocks are far from overvalued: "The reality is that the average stock is down about 30% to 40% since its peak last summer." Moreover, Awad points out, the Federal Reserve has been cutting interest rates, which should jack up stock prices.

SHORT SLUMP? Although Awad expects gross national product to decline in the first quarter, he thinks the recession will be over by the second half. Modest inflation and lower oil prices, as well as increased exports resulting from the weak dollar, are sure to help resuscitate the economy, he says.

Awad's postwar portfolio focuses on companies whose markets should turn robust in the slow-growth economy he sees after the fighting ends. "Demand for their products," he believes, "plus healthy balance sheets with little debt and strong cash flow will allow them to flourish." Their depressed price-earnings ratios should then head up.

Among his picks: Apple Computer, now at 51, which Awad thinks should trade above the market's 13 p-e. He sees Apple rising to $70 a share, or 14 times his 1991 estimate of $5 a share. Bergen Brunswig, a major drug wholesaler, is another stock he likes. Bigger rivals sell at a p-e of about 18. At 18 times Awad's 1991 estimate of $2.15, the stock, now at 28, is worth 38. Intel, a maker of semiconductor memory chips, is benefiting from the big trend away from mainframes in favor of desktop computers. Now at 44, Intel is worth 56, says Awad, or 15 times his 1991 estimate of $3.75 a share. He thinks Claire's Stores, the nation's largest retailer of women's low-priced fashion accessories, is recession-proof and cheap at $10 a share. Awad figures the stock is worth 17 1/2, or 13 times estimated 1991 net of $ 1.35 a share.

Before it's here, it's on the Bloomberg Terminal.