Digging Deeper

Richard Garriques says midcaps look like a winner

of 60% or less, Garriques says he’s essentially looking for companies that know how to put their money to good use. “An ROE lets me know that profit margins are solid and the business is running well,” he says, “and a low debt-to-capital figure means they aren’t strapped paying off money they’ve borrowed.” And then, says Garriques, it’s important to sit down with management. “We break bread and talk shop,” he says, “That’s the way we can find out who’s running things.”

Guidant (NYSE: GDT) is one company that passes muster. A maker of medical devices for cardiovascular patients as well as equipment for minimally invasive surgery, Guidant is poised for a “conservative 20% earnings growth rate” over the next two to three years, says Garriques. “A maturing population means companies with innovative medical technology products stand to do well,” he says. Garriques, meanwhile, has no qualms with a management that he calls competitive, or with the fact that Guidant has practically no debt and high profit margins.

Garriques says to expect 30% earnings growth from Sterling Commerce (NYSE: SE), a company that provides data and asset transfer services to financial companies. Garriques says that as currency and information flows increase as the global economy becomes increasingly intertwined, Sterling is on the cusp of a major boom.

PeopleSoft (Nasdaq: PSFT) is a Garriques favorite. The company, which provides a variety of client server applications for corporate customers, should see earnings grow 40% annually over the next few years.
Northern Trust (Nasdaq: NTRS), meanwhile, has a steady revenue stream and can expect earnings to rise an average 15% annually. “Here’s a company that’s benefiting from the 401(k) boom: they basically make money from holding institutional and individual investors’ money,” says Garriques.

Finally, Garriques says that whether or not the current spate of mergers continues in the telecommunications industry, Century Telephone (NYSE: CTL) remains not only an attractive target, but a well-run business as well. The 10th largest operator of local and cellular phone networks, Century should see earnings grow at an average annual rate of 17%, compared to 15% for the industry. Moreover, says Garriques, Century’s markets in the Midwest, South and Pacific Northwest might seem quite tempting to suitors.

GARRIQUES BARGAINS

Company

Exchange: Symbol

Current
Price*

Est. 2-3 Yr.
Annual EPS
Growth

P/E

Guidant Corp.

NYSE: GDT

$63.50

20%

26

Sterling Commerce

NYSE: SE

37.50

30

27

PeopleSoft

Nasdaq PSFT

2.63

40

50

Northern Trust

Nasdaq: NTRS

70.63

15

22

Century Telephone

NYSE: CTL

45.00

17

20

* As of 6/1/98
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