Loans No Other Bank Will Make

Every day, money manager Graham Tanaka sizes up four to five new stocks for his portfolio, which he believes "keeps him on top of fresh ideas" and lets him jettison nonperformers. The method works for Tanaka Capital Management: Its $315 million portfolio has grown 49.7% this year through Sept. 30, outpacing the 29.6% gain of the Standard & Poor's 500-stock index.

Among Tanaka's finds is FirstPlus Financial Group (FPFG), which specializes in home-improvement and debt-consolidation loans. Its stock rocketed from 19 last December to 57 on Oct. 7. After such a tear, how much more upside swing does the stock have?

Tanaka is convinced that FirstPlus will reach 80. "It's a company trading at a price-earnings ratio that doesn't reflect its fast earnings growth," says Tanaka. The company (formerly RAC Financial), which earned 28 cents a share in fiscal 1995 ended Sept. 30, made $1.35 in 1996. In 1997, Tanaka expects earnings of $3.50 and nearly $5 in 1998.

Sales growth has been just as explosive. Bear Stearns analysts Michael Diana and Craig Peckham figure fiscal 1997 will generate revenues of $534 million, and $912 million for 1998, up from last year's $293 million. Some critics say FirstPlus operates in a high-risk business. But the analysts say the borrowers are not bad risks but simply fall short of bank requirements.

Demand for such loans is soaring, they say, because many homeowners have so little equity in their houses that they are ineligible for loans from commercial banks. A typical FirstPlus loan consolidates existing credit-card, automobile, and other obligations into one long-term loan with a lower monthly payment, and is tax deductible.