Why Sallie Mae May Sally Forth

Value investor Harvey Eisen, who advised keeping cool and searching for bargains in the 1987 crash, is still finding undervalued issues in a market that has doubled since then. The senior vice-president for equity investments at Travelers Group offers up two nifty picks.

Eisen calls his first stock, Sallie Mae --the Student Loan Marketing Assn. (SLM)--a "Newt play." Sallie Mae has taken a beating since the government announced in 1993 that it would begin making federally insured student loans directly. By 1998, the government wants direct loans to account for 100% of such loan volume. The stock fell from 75 to a low of 32 and now trades at about half its 1993 high. But with all the Newtspeak about downsizing government, Eisen says the outlook for Sallie may be rosy again. "It's a terrific risk-reward story," says Eisen. "It's a big-cap name, the stock is down, and it's a high-quality business."

If the government backs off from making direct loans, it could mean rising earnings--and a rising stock price for Sallie Mae. Using a figure of 10 times earnings, vs. its current anemic price-earnings ratio of 8, Eisen reckons the stock could hit 50 in 1995.

Eisen's second pick: an up-and-comer called WorldCorp (WOA). It is in two very different businesses--one a potential gold mine, the other a mundane money-loser.

One unit, U.S. Order, develops hardware and software for such electronic transactions as home banking, home shopping, and other interactive services. Visa International paid $15 million last August for exclusive rights to its home-banking technology and pays U.S. Order a royalty of $8 per year for every customer signed up for the next seven years. Visa has 390 million cardholders worldwide. If it gets just 2.5 million subscribers, that means roughly $20 million a year--for a company with overhead of $6 million. So far, close to 40 banks have signed on.

Eisen sees huge potential. "Visa, a worldwide organization, is saying, `This company has what we want.' It's a major step toward home banking and the elimination of paper checks," he says.

The mundane part of WorldCorp: international air cargo. Its carrier operates at a loss, but 24.9% of it has been sold to a Malaysian outfit for $27 million, putting the value of the business close to the company's market capitalization.

Trading at 81/2, WorldCorp gives in-vestors World Airways and, in effect, a warrant on U.S. Order's technology, says Stephen D. Weinress of L.H. Friend, Weinress & Frankson. Another kicker: A spin-off may be in the works. U.S. Order President John Backus says that several investment banks and WorldCorp investors have approached it about doing an initial public offering and that WorldCorp is "actively considering" an IPO of 20% of its 91% stake in U.S. Order. "This is as open-ended a story as I've ever seen," says Eisen.