These Stocks May Just Defy Gravity

`This market is wild," says investment manager Rob Lyon as he peered into his computer screen on Oct. 6. The Dow Jones industrial average swung like a pendulum from a 140-point gain in the morning to a loss of 60 by afternoon and back up with a gain of just 16 to close at 7742. Fortunately for large-cap value investor Lyon, he repositioned his core holdings last spring and summer: He sold technology, basic-industry, and capital-goods stocks, and bought into shares in the consumer-products, health, and telecom sectors.

Among his top choices: tobacco giant Philip Morris (MO), drugmaker Bristol-Myers Squibb (BMY), and telecom leader Bell Atlantic (BEL).

"We think Asia won't come back for some time, and neither will Japan and Russia," says Lyon, president and chief investment officer at Institutional Capital in Chicago, which manages some $11 billion. The result, he says, will be a slowdown in global growth. Capital spending will be crimped, Lyon figures, and technology will be hurt.

Philip Morris has been a marvel, says Lyon: "It kept going up as the market was slumping." After hitting a low of 34 in mid-May, the stock stuck to an upward trend, closing at 49 1/8 on Oct. 6. Lyon sees it heading for 65 over the next 12 months. "Morris has been winning court battles," he notes. Talks with eight U.S. states to settle lawsuits against the tobacco industry are making progress, Lyon adds. One added kicker: Management is now open to the idea of spinning off its Kraft Foods unit, which is the largest packaged-food company in North America and which Lyons values at $40 billion, or 25 a share. The tobacco business alone, he figures, is worth $90 billion, or 40 a share.

Bristol-Myers, now at 97, is an undervalued drugmaker with a large product pipeline that investors have yet to recognize, says Lyon. His target for the stock: 130. Bell Atlantic has also been bucking the market, rising through some dips, from 41 in mid-August to 52 by Oct. 6. With its merger with GTE, Bell Atlantic is poised to enter the long-distance market, says Lyon, who figures the stock is worth 65.

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