Blue Chips Headed For A Blue Streak

The maxim that value investor Stuart Shikiar sticks to: Catch a company in the midst of a turnaround, and you'll make a bundle. Consider his purchase of Eastman Kodak more than a year ago--just as new management started to restructure: The stock jumped from 45 to 70. Ditto for Sallie Mae: Bought at 35, it's now 66.

"McDonald's (MCD), American Express (AXP), and Apple Computer (AAPL) are on the same superhighway toward major changes in their fortunes," says the president of Shikiar Asset Management, which steers $100 million for families and individuals.

McDonald's reminds Shikiar of Coca-Cola in the 1980s, when it faced slow growth and a mature market. All that perked up when new management led by Roberto Goizueta took Coke overseas in a big way. He sees a similar prospect for McDonald's, which has been growing faster abroad than at home. On Sept. 30, McDonald's owned, operated, or licensed 17,000 fast-food eateries, of which nearly 7,000 were overseas--in 84 countries--and rapidly growing. In China, for instance, where McDonald's has two units, the company plans to have 500 by the year 2,000.

Earnings in the past nine months grew 16%, more than 50% of it from outside the U.S. "For the first time, McDonald's international profit margins are larger than those in the U.S.," notes Shikiar. McDonald's sees overseas sales rising and operating profits growing at a compounded annual 20% rate. Warren Buffett is rumored to be accumulating shares of McDonald's.

Buffett has a big stake in American Express, which Shikiar says is also in a turnaround: It's going back to its core business: credit cards. Shikiar notes that American Express has reversed the trend of losing card members and client establishments. He sees a return to 12%-to-15% earnings growth and 20% return on equity. He figures Amex will net $3.10 a share this year, $3.60 in 1996, and $4.27 in 1997, up from 1994's $2.68.

Apple Computer is a more speculative Shikiar bet: He thinks it is buyout bait for Hewlett-Packard, IBM, Sony, or Motorola. Here's why: The stock is a bargain for a company with a superior product--"demand for which has been outstripping supply." Also, it has a "Fort Knox type of a balance sheet: virtually no debt and flush with cash." Equally important is that "Apple's management is in an upheaval, a situation that invariably attracts a takeover," adds Shikiar. "If Apple fails to deliver on earnings in the next quarter, [CEO Michael] Spindler is out fast," predicts Shikiar.

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