How Much Higher?

For the market, 1997 had peaks and valleys. What's to come this year?

for 1997, she heard from American Century, a Kansas City-based fund family that was looking for the right manager to set its Growth Fund back on track. Goodwin leapt at the opportunity.

Her new mandate is to find large caps–stocks with a market capitalization of $5 billion or better–provided they’ve got the wherewithal to grow faster than their peers. It’s not enough to have a high projected earnings growth rate. American Century’s emphasis is to catch a company’s acceleration as quickly as possible. That means if a company’s business is strong enough to help it beat Wall Street projections or even zip past analysts, Goodwin wants to benefit before anyone else.

Gillette (NYSE: G, $102)

In an uncertain, Gillette seems like the best of all worlds. For one, the company is a safe, household name investors could gravitate toward during the course of the year. Secondly, Gillette is a steady earnings grower, one that Goodwin feels could increase at a 17% annual rate over the next five years.

But Gillette stock is not cheap. At press time, it was trading at 34 times 1998 projected earnings. Still, Goodwin thinks the company stands a good chance of posting a 20% jump in earnings this year. Why? Market dominance helps: 81% of its sales come from products such as razors and shaving creams, where Gillette is the absolute leader. And to top it off, Braun, the German maker of household gadgets (and a company subsidiary), could be a surprise beneficiary of a recovery in Europe.

Finally, Goodwin thinks Gillette’s introduction of a new shaving system by mid-1998 will also boost profits and push the stock as high as perhaps $120 in the next 12-18 months.

Tyco International (NYSE: TYC, $44.50) A conglomerate that Goodwin feels is on track to grow earnings at a 20% rate over the next five years, while its stock trades at 20 times estimated 1998 earnings. Tyco spans a number of products. It makes disposable and specialty medical products, such as bandages and ankle braces. In addition to holding ADT–its electronic surveillance division–Tyco ranks as the No. 1 contractor for designing and installing fire detection and sprinkler systems. Only eight Wall Street analysts cover the company, and since Tyco isn’t getting a lot of attention, Goodwin says it’s a great time to capitalize on its earnings acceleration, especially with profits in line to rise 30% this year. She feels the stock could reach $60 a share over the next 12-18 months.

Microsoft (NASDAQ: MSFT, $140) Although everyone knows of Microsoft’s recent antitrust skirmish with the Justice Department, Goodwin feels a lot investors have overlooked one important fact: the company dominates its business. Microsoft’s operating systems run 90% of the PC’s in use today, and the company is busy expanding into automobiles and set-top boxes. Meanwhile, Microsoft has maintained earnings growth of 25% annually. Goodwin feels profits could take off in the second half of the year, especially as Microsoft begins another software upgrade cycle with the launch of Office 99 and NT 5.0. Goodwin

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