The bigger they are…

Large stocks gave their mid-cap counterparts a run for their money

After a fantastic three-year run and a 12% gain, analysts expected the stocks of the mammoth companies atop the S&P 500 to slow down. Much to their surprise, though, large-cap stocks, up 24% in the last quarter of 1998, once again managed to outpace those of small and mid-sized companies poised for growth.

Last August, portfolio manager Richard Garriques, who at the time was with New York-based Bond Procope Capital Management, recommended five mid-sized growth companies with market capitalizations of between $500 million and $12 billion.

Three of Garriques’ picks, CenturyTel (NYSE: CTL), Guidant (NYSE: GDT) and Northern Trust (Nasdaq: NTRS), demonstrated that the best of the mid-caps grow up to be big boys. The other two, PeopleSoft (Nasdaq: PSFT) and Sterling Commerce (NYSE: SE), showed that some investors took their money out of the more volatile mid-cap sector and instead rushed to the familiar large players on the S&P 500 index.

Of the five stocks, Guidant scored the most impressive gains, returning 56.15% over the year ended June 1. “We still like this one,” says Bond Procope President Alan Bond. “We still see medical devices as a rapidly growing industry.” He adds Guidant has the potential to return 25% to 45% over the next couple of years.

CenturyTel (formerly Century Telephone Enterprises), which was on the S&P 400 (the mid-cap benchmark) at the time it was recommended, was recently added to the S&P 500. The telecommunications company has had tremendous growth, posting a 35.84% return over the past year. Bond says CenturyTel has created a real solid niche for itself in the area of cellular phones, long distance service and local telephone business. Bond adds that CenturyTel is a steady performer that shareholders will want to buy and hold on to.

The biggest disappointment of last year’s picks was PeopleSoft, which slumped 62.61% over the 12-month period. It was down from $42.63 a year ago to $15.94 at press time. After putting all of its eggs in one basket-positioning itself as a Y2K computer problem solver-PeopleSoft found itself walking on eggshells. Until the company broadens its product base and services, Bond advises shareholders to cash out.

As for the remaining two picks, Northern Trust was up 27.61% since its recommendation, benefiting from the 401(k) boom (both institutional and individual money). And Sterling Commerce’s stock has been on a roller-coaster ride, rising to a 52-week high of $48.75 before dipping to $37.38, or a negative return of 0.32%.

Three Out of Five Isn’t Bad

Stock (Exchange: Symbol)

Current Price*

Price at Recommendation

Total Return

Current Value of $1,000Investment

Est. 5-Yr. Annual EPS Growth

Guidant Corp. (NYSE: GDT) $49.56** $31.74 56.14% $1,561 20.13%
Sterling Commerce (NYSE: SE) 37.38 37.50 -0.32 997 28.20
PeopleSoft Inc. (Nasdaq: PSFT) 15.94 42.63 -62.61 374 23.14
Northern Trust Corp. (Nasdaq: NTRS) 90.13
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