Cellular cheap discount phone

From ten top fund managers, the stocks they love most.

The stock market lately has been like a three-masted schooner caught in a gale. One minute it lists badly and looks as if might capsize. The next minute the wind subsides a bit and you think smooth seas may lie ahead. Almost all investors need a little help keeping their moorings in a period like this. What better time to get ideas for long-term stocks to own, from some of the nation's top-scoring mutual fund managers? All the managers we turned to have produced first-rate results. Most have weathered many seasons and have encountered both bull and bear markets.

We didn't ask which way they expect the market to blow next. They don't profess to know that any more than a ship's captain is able to predict next month's weather. Instead, we asked them for a single favorite stock--not the stock they like most for the next three or six months, but the one they're most excited about for at least the next year or two.

Add one or more of these managers' top picks to your own portfolio and you should improve its seaworthiness.

Ericsson

Mark Yockey is no stranger to hard times. At his first job, with the Michigan state pension fund in 1981, he was told he might not get paid, so decimated was Detroit by Japanese import autos. That memory has helped Yockey, manager of Artisan International fund, keep his perspective despite the lousy foreign markets of recent years. Yockey, 42, starts by studying the world's economies and markets to find the best values (currently, he has all but 20% of his fund's assets invested in Europe). Then he looks for stocks with increasing earnings that are selling at reasonable valuations.

His top pick is Ericsson, the Swedish cellular-telephone maker. The stock has taken a pasting, dropping from a high of $34 last July to $23. It now sells at 22 times analysts' 1999 consensus earnings, according to Zacks Investment Research. Yockey is confident that Ericsson will rebound because he's convinced cellular-phone sales will soar. "In the developed world, there will eventually be at least as many cell phones as regular phones," he predicts.

Skeptics say cellular phones are pretty much alike any telecommunications company can make them, so competition will force prices down. But Yockey argues that cell phones are becoming hand-held computers with patented software. Nokia has a new generation of phones out this year, which has hurt Ericsson (symbol ERICY, Nasdaq). But Yockey predicts Ericsson will leapfrog Nokia next year with its new generation of phones.

Family Golf Centers

Thomas Maguire buys small stocks and large stocks, cheap stocks and fast-growing stocks at Safeco Growth. "I don't turn away any broker's ideas," says Maguire, 45. "Every once in a while, something clicks. And when it clicks, I start getting more involved and doing more research."

He thinks Family Golf Centers clicks right now. It's the leading owner-operator of golf driving ranges in North America. "Golfers would like to golf more than they can," says Maguire. "While you can't always find four or five hours to play a round, you can always find 45 minutes to hit a bucket of balls."

Family Golf Centers (FGCI, Nasdaq, $17) has no major competitors and is growing by buying up and modernizing some of the nation's 2,200 largely "mom and pop" driving ranges. Family Golf Centers typically offer lessons, and many of the driving ranges are enclosed or two-tier facilities complete with snack bars and fully stocked pro shops. The pro shops are a big revenue source, selling clubs, balls and clothing. "They're bringing professional management to a business that has lacked it," Maguire says. He expects earnings to grow 30% annually, and the company to earn $1.30 per share in 1999, or 13 times earnings.

General Motors

Michael Price is no longer managing mutual funds, but we sought him out anyway because of his long record as an investor in undervalued stocks for Mutual Shares and its sister funds. His choice is General Motors, the world's largest automaker. General Motors (GM, New York Stock Exchange, $56) "has been doing the right things for the last couple of years and the market hasn't given it credit," says Price, 47.

The company has reduced its debt and fully funded its pension obligations. It has also sold off lackluster businesses while holding on to the good ones, in Price's view. It sold EDS, which provides computer services, and jettisoned Hughes Electronics' defense-contracting business while keeping its telecommunications and aerospace businesses. It also sold DirecTV, a satellite-television system, and plans to spin off Delphi Automotive, the world's largest auto-parts supplier.

GM is selling small plants and benefiting from its "tough stance" with the United Auto Workers, Price says. Still, the share price isn't much above what it was in mid 1996. Critics say auto sales are near a peak and will slide if the economy slows, but Price says interest rates are low and GM is making more money on each car it sells. GMAC, GM's financing arm, is healthy and Price considers GM stock "real cheap." The consensus of analysts predicts GM will earn $7.78 per share in 1999, so it sells at just seven times earnings, according to Zacks.

Price calls GM "a conglomerate" selling at a discount to the value of its component parts, "and they're unlocking the pieces of the conglomerate. You're paying almost nothing for the basic domestic auto business."

HomeBase

Weekends often find Robert Rodriguez racing his fire-engine-red Porsche RS911 on a California track. But he steers FPA Capital fund toward unexciting stocks. "You can take your risks in the market, or you can take them on the track," says Rodriguez. He searches for small to medium-size companies that are unloved and out of favor but that have little debt and strong businesses.

He just finished buying HomeBase, a chain of superstores for home remodeling that compels with Home Depot. The firm's 83 stores are mostly in California, with some in Arizona, Oregon and Washington.

Why even consider a stock that challenges the Home Depot juggernaut? Partly because it's cheap. HomeBase (HBI, NYSE, $6) sells at just 60% of book value and a mere 10% of its annual sales. The company has little debt, and Rodriguez expects it to earn 60 cents to 70 cents per share next year. So the stock trades at just nine or ten times 1999 earnings.

Moreover, HomeBase has been going toe to toe with Home Depot and shows no signs of toppling, he says. To the contrary, his visits to newly remodeled stores uncover accelerating sales growth. Having survived California's recession and the full-scale assault from Home Depot, Rodriguez believes the company has what it takes to keep growing.

Poorly run for years, HomeBase brought in new management four years ago, which has boosted pretax profit margins--still a mere 3.5%, compared with Home Depot's 8%. Assuming the company continues the turnaround, Rodriguez expects it to earn $1.25 to $1.50 per share within the next two or three years.

Knightsbridge Tankers

Robert Perkins's stock pick is a complex one, and at first blush it appears almost too good to be true. "It's something I'd put my mother-in-law in," says Perkins, who runs Berger Small Cap Value. Be aware that, like most of these managers, Perkins, 58, is praising one of his fund's largest holdings. Nevertheless, he says he plans to hold Knightsbridge Tankers (VLCCF, Nasdaq, $21) for years to come.

Knightsbridge was set up two years ago solely to buy five oil supertankers and then lease them to Shell International Petroleum for seven years. After that, Shell will almost certainly buy the tankers or renew the lease. Meanwhile, Shell pays Knightsbridge $32,500 to $53,000 a day per tanker, depending on the going rate. Here's the kicker: Shell guarantees it will pay Knightsbridge at least enough to pay a $1.78 annual dividend to shareholders.

Currently, each tanker is being leased for $42,000 daily. Based on a complex formula, that means the stock's annual dividend is now about $2.60. Perkins says the world's tanker fleet is aging and that lease and sales prices are likely to go up in coming years. "It's a no-brainer," says Randy Hughes, an analyst who works with Perkins.

The company has no other assets and pays out all its income in dividends to shareholders. "You're being paid 9% annually guaranteed by Shell, and the current yield is 12% annually," says Perkins. And after seven years, he believes the ships will probably be worth roughly two-thirds of their purchase prices.

If Shell buys the tankers at the end of the seven years, Knightsbridge may well close up shop, distributing its cash to shareholders. Why would Shell offer such a good deal to Knightsbridge? Perkins thinks it's because Shell wanted to keep the initial cost of the supertankers off its balance sheet so that it could appear more flush with cash.

Liberty Media Group