Coming Up Trumps In The Slump

This money manager went shopping for stocks--in the depths of the market's mid-July slide--and came out a winner. From July 16 through July 24--when the market was badly battered--the portfolio of Catherine Lawson, chairman and chief investment officer of Highland Investment Group, gained 0.10%, vs. a loss of 0.32% for the Standard & Poor's 500-stock index. Highland also did well in the longer term: From Sept. 30, 1995, through July 24, 1996, its stocks gained 6.4%, compared with the S&P's 0.47%.

Lawson is high mainly on small-caps. One of her latest favorites is PETsMART (PETM), which operates nearly 300 pet superstores, specializing in food, supplies, and services. Another is Express Scripts (ESRX), a provider of pharmacy-management services--including mail-order medicine--designed to contain costs of prescription drugs.

PETsMART has been on a quite a roll this year: Its stock has nearly doubled, from 12 5/8 a share in mid-January to 22 7/8 by July 30. Lawson figures it will hit 30 before yearend. She expects PETsMART's expansion will continue, adding about 60 stores this year. She also looks for profit growth: 85 cents a share in the year ending Jan. 30, 1997, and $1.22 in fiscal 1998. "Demand for these one-stop pet superstores is growing by leaps and bounds," says Lawson, who notes that PETsMART's slice of the $32 billion pet business is still only 4%. She sees it doubling in a couple of years.

Express Scripts, trading at 35, is down from 58 in mid-January. But Lawson sees it snapping back to the upper 50s. The business is capital-intensive, notes Lawson, but there's substantial growth ahead. And with its stock way down, Express Scripts is "bound to be taken over," says Lawson. It is, she adds, "the last remaining independent mail-order drug stock."