All Clear For Takeoff

Money manager Lou Holland is still high on his portfolio picks

The portfolio.
Last year, Chicago-based institutional and mutual fund portfolio manager Lou Holland launched our Private Screening section with a bang. Led by two drug stocks, Holland’s five picks have done quite well, with a total return of 37.5% over the last 12 months, compared with 27% for the S&P 500. That tally would have turned a $5,000 investment into $6,874. Pfizer (NYSE: PFE) and Eli Lilly (NYSE: LLY) gained 87% and 41%, respectively, while insurer American International Group (NYSE: AIG) turned in a healthy 45% increase. PepsiCo (NYSE: PEP) logged a total return of 18% after the spin-off of its restaurant holdings. The portfolio’s laggard, Electronic Data Systems (NYSE: EDS), was little changed for the year.

The outlook.
Holland thinks his picks are still good for the long haul. While Pfizer and Lilly are expensive, they’re still attractive. “Pfizer has one of the best new product pipelines around, and I feel Lilly is going to be an acquisition candidate,” he says. Holland also says Novartis, the Swiss company born of the union between Ciba-Geigy and Sandoz, is also very attractive. “The company has one of the deepest pipelines around,” says Holland, and “restructuring there should help profits take off.”

Computer servicing company EDS, however, slipped 4.7%. The reason: competition has been stiff, particularly for contracts to ready computers for the year 2000. As the new millennium approaches, EDS will bounce back nicely, he says. And, suggests Holland, you might consider IBM shares since Big Blue should also benefit from a boom in service.

PepsiCo remains attractive because its snack food division is what Coke is to soft drinks. “Consumer staples will do fine if we run across a bear market,” Holland says. Additionally, PepsiCo should grow 15% annually (vs. 17% for Coke), yet Pepsi trades at a price-to-earnings ratio of only 2 3 (vs. 35 for Coke).

Finally, Holland continues to see AIG as a core holding. “The company is one of the dominant global players in the industry,” he says. While AIG’s been hurt by Asia’s problems, he expects the company to rebound as soon as Pacific Rim economies rally.

Holland’s High-Flying Stocks

Stock (Exchange: Symbol)

Current
Price*

Price at
Recommendation

Total Return
(on $1,000 Investment)

Est. 5-Year Annual EPS Growth

American Intl. Group (NYSE: AIG)**

$120.06

$125.50

45.3% ($1,453)

0.148

Electronic Data Systems (NYSE: EDS)

43.81

45.50

-4.70 ($953)

13.7

Eli Lilly & Co. (NYSE: LLY)**

65.38

92.75

41.30 ($1,413)

16.2

PepsiCo Inc. (NYSE: PEP)***

36.38

34.50

18.40 ($1,184)

15.1

Pfizer (NYSE: PFE)**

88.38

94.75

87.10 ($1,871)

16.6

Total return on $5,000 investment

37.5

-6874

*As of 2/25/98
**Stock splits included
***Includes spin-off of Tricon Global restaurants on 9/9/97
Estimated EPS growth rates compiled by Zachs Investment Research
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