How Much Higher?

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

feels the stock could reach $165 in the next 12-18 months.

To say Eric McKissack had a banner year is putting it mildly. McKissack, who joined Ariel Capital Management in 1986, saw his Ariel Appreciation Fund top all comers in the mid-cap category in 1997, according to Lipper Analytical, with a 38% total return vs. 31% for the S&P 400 mid-cap benchmark.

A traditional sort of value manager, McKissack looks for cheap stocks. This guides him toward companies whose P/E is at least 20% less than that of the market and their industry peers. McKissack also says he looks or shares trading at 40% or more of the company’s private market value–their worth should a suitor come along. Invariably, that guides McKissack’s attention to out-of-favor companies Wall Street has all but abandoned.

First Brands (NYSE: FBR, $27) People don
‘t know First Brands, but they are familiar with the company’s products, which include Glad food wraps and bags. First Brands is also the leading maker of Scoop Away kitty litter, a good business to be in since cats are now the most popular household pet in the U.S.

Early last year, though, First Brands came out with disappointing earnings and saw its stock promptly lose 15% in the market. But its shares have since rebounded. McKissack says earnings should become more consistent. Also, the stock looks cheap, trading at a P/E of 15 times for a company that should post earnings growth of 20% this year and 13%-14% annually over the next five years. McKissack thinks the stock could reach the low-$30s-a-share range in the next 12-18 months.

Whitman (NYSE: WH, $16) While Whitman recently spun off its Midas Mufflers and Hussman Food Refrigeration equipment businesses, the company hung onto the largest and most profitable franchise, Pepsi-Cola General Bottlers. Whitman also has a foothold in overseas markets, particularly in the former Eastern bloc, where it also holds Pepsi bottling rights for Poland and Latvia. McKissack says the company, currently trading at $16 per share, could reach the low $20s over the next 12-18 months.

Allergan (NYSE: AGN $34.50) has struggled to overcome a mature product line of contact lens products. While contact lens wearers used to spend an average of $35 a year on solutions, that outlay has decreased to a current price of about $18. Now, says McKissack, Allergan has come up with new products to boost earnings.

One new product helps to relax the muscles that cause some patients to have eye movement disorders. Another cures severe psoriasis. A third product is a treatment for patients who’ve just undergone could boost earnings 15% annually over the next few years. Allergan currently trades at a 16 P/E multiple, and according to him, the stock could reach low $40s in the next 12-18 months.

As founder of the institutional money management firm Woodford Gayed Management Inc., Peggy Woodford Forbes wants to have her cake and eat it too. As a growth manager, she looks for large

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