Low expectations–big gain

Quinn Stills says neglected stocks often pack a surprise punch

as $38 a share earlier this year, but with oil prices low and refining margins very weak, the company stock was pinched. Recently, the stock was mired at a price a mere 9.5 times projected 1999 earnings, compared with 20 for the S&P 500. Meanwhile, the stock sold at a price-to-book ratio of 2.1, compared with 4.3 for the S&P 500. “That’s exactly the time to buy the stock, since the business is cyclical,” says Stills.

Stills’ second selection, money center bank Chase Manhattan (NYSE: CMB), trades at a slim P/E multiple of 8.1, and a wiry price-to-book of 2.0, making it one of the cheapest banks around. Stills says the company is generating good cash flow and its earnings prospects remain favorable. What’s hurt the stock, he says, were a series of “event shocks” including the continuing crisis in Asia and Russia and the unfolding scandal enshrouding the Clinton presidency–factors that should soon pass.

American Greetings (NYSE: AM) is a solid performer in a good business, Stills says. A producer of greeting cards, gift wrap and party favors, American Greetings shares’ are selling at a P/E multiple of 13.5, and at 1.9 times the company’s book value. “The company’s stock never gets really expensive since the business isn’t high growth,” points out Stills, who nonetheless likes management particularly for developing innovative products and buying back stock on occasion.

Columbia Energy (NYSE: CG), a natural gas pipeline, exploration and production company, also makes Stills’ list. “The market has low expectations for this company, but Columbia should benefit from improving natural gas prices,” he points out. It also doesn’t hurt that at a price of 15.0 times projected earnings next year and 2.1 times book, Columbia is cheap.

Stills says the upcoming new Star Wars film trilogy,portends well for toy maker Hasbro (NYSE: HAS), a stock that sells at a 14.3 P/E multiple and 2.5 times its book value. The company has no long-term debt, he says, and looks particularly good in December, when the stock market tends to rally around toy companies.

Banking on the Safe and Sound

Company

Exchange: Symbol

Current
Price*

Est. 5-Yr.
Annual
Growth

P/E

Yield

Tosco

NYSE:TOS

$21.38

12.1%

9.5

1.1%

Chase Manhattan

NYSE:CMB

41.06

11.5

8.1

3.6

American Greetings

NYSE:AM

39.88

10.5

13.5

1.9

Columbia Energy

NYSE:CG

58.81

10.2

15.0

1.4

Hasbro

Amex:HAS

29.06

13.2

14.3

1.1

* As of 10/06/98EPS growth rates from Zacks Investment Research.  
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