Scavenged stocks

Dawn Alston Paige's midcap picks stay undervalued

For Dawn Alston Paige, picking market winners is a lot like a scavenger hunt-and SC: sometimes her stocks just get scavenged, at least in the short term. It’s a process Paige HD: with market caps between $1 billion and $5 billion and returned 6.47% for 1999 (vs. an average of 9.33% for all midcap value funds according to Lipper).

For her miniportfolio in last June’s Private Screening, Paige focused on “fallen angels,” and, she says, “sometimes they stay fallen.” Paige’s picks slipped 18.28% overall TX: for the year.

The biggest laggard was Saks Inc. (NYSE: SKS), parent company of Saks Fifth Avenue, which Paige says “lost momentum; it couldn’t get all cylinders going at once,” exemplified by its 43.56% loss. “Saks’ part of the business should have been a growth platform, but it had a couple of disappointing same-store sales that weren’t as strong as the Street expected.”

However, she says, intrepid investors willing to hold SKS could see it rise to $20 in the next 12 to 18 months. One reason, she says, is that “a Mexican investor, Carlos ‘Slim’ Helu, filed to acquire a percentage of the outstanding share base in early March. He’s part of the same group that invested in CompUSA. And Saks has a favorable risk/reward, so you can’t get hurt too badly.”

A short time frame (which a year is for value investors) also punished retailer Claire’s Stores (NYSE: CLE), down 31.09%. Also, “higher energy prices mean consumers have less to spend,” says Paige. But she says this is another potential long-term hold.

Dairy company Dean Foods (NYSE: DF), down 22.31%, suffered because “the market isn’t interested in food stocks right now,” says Paige. “They’re not sexy, so from large caps to small caps they have a disadvantage.” However, she says Dean had a huge third quarter ending in February, with earnings reaching 67 cents per share vs. 20 cents for the year-ago third quarter.

Union BanCal (now listed as NYSE: UB), in the red 14.06%, took it on the chin in another out-of-favor sector, financial stocks. “With energy and interest rates having made cyclical bottoms, it feels like there’s no place else to go,” says Paige. Long term, UB offers opportunities due to the thriving California climate (specifically Silicon Valley), but recent probing of its credit quality by the Street could make investors cool their heels.

Finally, the one pick that broke into the black was DQE Inc. (NYSE: DQE). “Although utilities have been beaten down and are also suffering in this interest rate environment, this is actually a backdoor Internet play,” says Paige. She adds that Wall Street analysts unlocked the value of this multi-utility delivery and services company by looking at the company’s investments, “and DQE has a lot of tech-related investments.” The stock returned 19.64%, and Paige’s outlook is for it to rise to $51 per share.

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