How Much Higher?

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

companies that are growing earnings at a 10% average annual rate. To make sure those earnings are coming from profitable business and not just cost-cutting, she looks to revenue growth that is running about 10% a year as well. But, she’s not willing to shell out just any price for stocks. Typically, she won’t jump at a company unless its P/E is around that of the S&P 500. Her strategies have kept her in the top rankings of money managers around.

Johnson & Johnson (NYSE: JNJ, $67.25) We’re all familiar with Johnson & Johnson, one of the world’s largest pharmaceutical companies with a product line chock-full of household names like Tylenol, AccuView contact lens products, Reach toothbrushes and Band Aid bandages. But there’s more to a company that’s targeted to grow profits at a 14% clip and currently trades at 27 times estimated 1998 earnings, says Woodford Forbes. Johnson & Johnson’s pharmaceutical division is top-flight, offering Hismanal, an antihistamine, and Ortho Novum, the leading oral contraceptive on the market. J&J’s research and development efforts have kept the company’s pipeline well stocked. That’s why she thinks the stock can reach $70-$75 a share in the next 12-18 months.

Wal-Mart (NYSE: WMT, $39.50)

As the largest retailer in the U.S., Wal-Mart could just sit back and let its more than 3,300 stores reap in profits. Not so. Wal-mart is busy overseas, where it already has over 300 outlets, while conjuring up new ways to boost revenues at home, says Woodford Forbes. For starters, look for Wal-Mart to target Mexico, Latin America and Asia, she says. But she is encouraged by the company’s thrust into new territories that should keep earnings growing at a 15% rate. Wal-Mart is also expanding overseas, and at home, the retailer’s new vista is on he superstore–outlets that combine household goods and supermarkets under one roof. For its existing stores, the company has set up a database larger than any deployed in the retailing arena, which lets Wal-Mart regionalize and customize each store by determining a product mix that suits local customers. Woodford Forbes says Wal-Mart shares, currently trading at a P/E of 26, can reach $45-$48 in the next 12-18 months.

SBC Communications (NYSE: SBC, $75.25) No matter what becomes of the Telecommunications Act of 1996, SBC Communications stands to come out ahead. That’s because SBC has its hand in local, cellular and PCS services and has taken an aggressive stance in developing new businesses, says Woodford Forbes. Overseas, SBC has been an aggressive investor as well, another factor that is helping to boost earnings. The company currently holds 10% of Mexico’s primary telecom company, and has stakes in other phone service providers in France and Latin America, she says. Trading at about 21 times projected 1998 earnings, SBC should continue to grow earnings around 15% annually. As an extra treat, SBC’s dividend gives investors at 2.4% yield, which exceeds the S&P 500′s 1.69% average yield. Forbes thinks the stock will rise to $85-$90 a share over the next 12-18

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