When Bernard Beal, CEO of New York-based investment bank M. R. Beal & Co. (No. 6 on the BE INVESTMENT BANKS list with $42.2 billion in total managed issues), crafted his portfolio for BLACK ENTERPRISE last spring, he chose stocks priced under $25 that held a clear potential for long-term growth. Among his mix of media and pharmaceutical stocks were a couple of possible takeover targets, making them even hotter prospects (see “A Real Media Player,” May 2006). However, investor expectations for two of his picks soured and those stocks plummeted. Since January of last year, the portfolio’s value slid by 8.9%, while the Standard & Poor’s 500 climbed by 14.6%.
Time Warner Inc. (TWX) led Beal’s picks, rising some 25%, from $17.15 to $21.55. Last August, after the company reported its second quarter earnings, the stock price jumped to $20 for the first time since 2002. “The company has done what I suspected it would do,” says Beal. “I would hold on to the stock because it still has room to grow.”
Also experiencing a significant appreciation were shares of the independent film studio Lionsgate Entertainment Corp. (LGF). Investors enjoyed a 24.5% return as shares climbed from $9.20 to $11.45. At the Academy Awards last year, the Lionsgate film Crash won the Oscar for Best Picture, which helped generate two consecutive years of $300 million-plus domestic box office earnings. “I continue to be optimistic,” Beal says. “I think you’re looking at a company that could be a $15 stock.”
Beal also chose 24/7 Real Media Inc. (TFSM), a leading global Internet advertising company, but it wasn’t a big performer4posting a modest gain of 4.9%, from $9.48 to $9.80. “I thought this stock would be a mini-Google because it basically was into advertising space on the Internet,” Beal says. Even though the stock hasn’t performed well, he maintains a positive outlook.
Investors have reason to be optimistic about Sirius Satellite Radio Inc. (SIRI) since the company announced a $13.6 billion stock-swap merger with XM Satellite Radio Holdings Inc. Beal says that when the expected merger was delayed, investors penalized both stocks. Shares of Sirius fell 36.8%, from $5.92 to $3.74. At the end of 2006, the company touted a subscriber base of 6 million, up 82% from the year prior.
But Sirius investors shouldn’t get ahead of themselves since the merger must still obtain regulatory approval. Yet, Beal says he remains “fairly bullish” on the stock and would advise investors to hold on to their shares.
The real drain on the portfolio was the one non-media pick. Shares of biopharmaceutical company AVI BioPharma Inc. (AVII) dropped a staggering 61.5%, falling from $7.41 to $2.85. Last May, the company’s stock price plummeted after it reported disappointing trials of its hepatitis C drug (AVI-4065). Beal says part of the attraction was that many investors thought AVI BioPharma may have been a candidate for acquisition, but he would now tell investors to sell and cut their losses.