Hot On The Case

For Ariel's McKissack, value stocks are still to be found -- with a little extra effort

he’s landed upon a few gems. First is Allergan (NYSE: AGN), a pharmaceutical company specializing in contact lens solutions and ophthalmic drugs to treat glaucoma. McKissack says the company (trading at a P/E ratio of 21.85 as of this writing compared with 19 for the S&P 500) has gone overlooked during a time when it was restocking its product pipeline and getting approval for new products. McKissack sees Allergan earning $1.80 this year and $2.05 next year, versus $2 in 1996, and he thinks it could rise to the high $40s in the next three years.

Hasbro (AMEX: HAS), a leading toy manufacturer, has also piqued McKissack’s interest. “Hasbro’s been known as a boys’ toymaker, and the company stands to profit from movies like Star Wars, Batman and Hercules.” McKissack thinks Hasbro can generate earnings of $1.80 a share in 1997 and $2.05 next year, while the stock should rise to $43 in the next three years.

Lee Enterprises (NYSE: LEE), which owns broadcast properties in places like Honolulu and operates newspapers in small- and medium- size cities, is one of McKissack’s favorites but it hasn’t gotten a lot of attention. “It’s a good time for a small media player like Lee,” McKissack says. “The price of newsprint is down, and a change in government rules on the ownership of broadcasting companies has raised stock prices industry- wide.” The Ariel manager sees earnings of $1.40 in 1997 and $1.60 next year, and thinks the stock could attain a price of $43 in the next three years.

McKissack also likes Safety-Kleen (NYSE: SK), an environmental waste company that washes machinery used by auto mechanics and the grimier industries around. Afterward, the company recycles the oil it collects, which it in turn markets. He sees earnings rising from $1.03 for fiscal 1997 to $1.20 next year, helping to push Safety-Kleen stock from a current price of $19.50 to $30 in three years.
Finally, McKissack says Century Telephone Enterprises (NYSE: CTL), which provides local telephone service in rural areas, looks good, especially since its cellular business continues to grow at a rapid rate. He thinks earnings will grow from $2.40 in 1997 to $2.70 next year, while the stock may well rise from a current level of $36.75 to $55.

McKissack’s Picks

Company

Exchange: Symbol

Stock Price*

P/E

Allergan

NYSE: AGN

$30.81

21.85

Hasbro

AMEX: HAS

28.56

17.96

Lee Enterprises

NYSE: LEE

25.5

19.32

Safety-Kleen

NYSE: SK

19.5

19.12

Century Telephone

NYSE: CTL

36.75

12.13

*As of 8/18/97
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