Kudos For Three Laggardsby
While most market mavens are wary heading into 1998, Joseph Battipaglia, investment strategist at Gruntal & Co., is fiercely upbeat. He says that the Dow will hit 9000 by midyear, tech stocks will rebound smartly, and large-caps will lead the upward drive.
What's behind Battipaglia's bullish stance? He expects the Fed to cut short-term interest rates in the first quarter, in part due to Asia's woes. The market will also draw staying power from solid corporate earnings. Overseas news will brighten: Battipaglia sees a decent resurgence in Europe, robust 8% growth in China's gross domestic product, and a rebound for the rest of Asia by the second half.
Battipaglia is beating the drum for three recently disparaged large-caps: Boeing (BA), bowling-gear and boat builder Brunswick (BC), and Texas Instruments (TXN)--the chipmaker that high-tech bears love to hate. Boeing, says Battipaglia, will be '98's "comeback stock." Now at 45, the stock has been beaten by investors who bailed out after Boeing acknowledged it was having trouble filling orders. Battipaglia sees the stock at 70 sometime in 1998. The stock is being hurt by deferred Asian orders, "but the orders have only been deferred--not lost," he says. Management is confident, he adds, that production "will be back to plan" by April. He expects earnings of $3.10 in 1998 and $4.60 in 1999, up from 1997's estimated $1.80.
Brunswick, whose stock dropped from 36 to 28 in 1997, has been hit by a one-two punch, says Battipaglia. With international sales accounting for 25% of revenues--and Asia representing 10%--analysts have pared down 1998 estimates. At the same time, the Federal Trade Commission is looking into allegations of monopolistic practices by its boat operations. Battipaglia says the stock, at 11.5 times estimated 1998 earnings of $2.43, deserves a higher price-earnings ratio and is worth 45.
TI is Battipaglia's bet in the volatile technology group. He thinks its recent recovery--from 40 to 45--reflects recognition that Asia accounts for less than 20% of revenues. So he expects TI sales in '98 to jump to $10.8 billion, up from 1997's estimated $8.9 billion. Earnings, he says, will leap to $3.10 from 1997's estimated $2.08. His 12-month target: 70--also its 1997 high.