Europe, and we think that is going to happen.
MANNS: One company is Safeway (NYSE: SWY), probably one of the largest providers of supermarket activity in the United States, primarily in the western U.S. Safeway is a company that is selling at around 16 times our 2000 estimate, for around 20% growth, and frankly, understanding that last year was a year where companies that had defensive characteristics were penalized by the marketplace as we were going for go-go growth. This is still a company that has an extremely valuable franchise. It’s improving fundamentals, in both its comparable-store sales, and also in its margins.
If you’re talking a look at somewhere in the neighborhood of 22 to 23 times a $2.35 estimate, that could probably give you a decent target. Maybe $50 a share.
Second is Microsoft (Nasdaq: MSFT). I can’t think of a year in which Oracle (Nasdaq: ORCL) will have been up, goodness, 140% last year. Sun Microsystems (Nasdaq: SUNW) was up somewhere in the neighborhood of close to 200%. These are two companies that have benefited from Internet traffic coming through.
What has happened is that people have the perception that Microsoft is disintermediated in an Internet environment. What you’re missing is the idea that Microsoft has investments in a number of Internet companies where that value simply is not realized.
On top of that, you’ve got a very prolific product cycle coming forward with Windows 2000. We’ll see more evidence of that in the first quarter and I just believe that earnings estimates for Microsoft are too low. Yes, it sells at 60 times earnings-that’s fine and I’m not going to argue that point-but I guess my point is that if someone is looking at $1.63, they should be taking a look at earnings of $1.70 to $1.75 for Microsoft.
The final company that I’ll talk about is Cardinal Health (NYSE: CAH). Cardinal Health is one of the largest drug distribution companies in the U.S., but the beauty of Cardinal is that a larger percentage of its overall operating income comes from nondistribution activities. By that, it’s either packaging of drugs, it could be a device that is put into a hospital to automate the dispensing of drugs. That’s a subsidiary called Pyxis. It could be the Medicine Shoppe, which in and of itself is a pharmacy service with probably a thousand outlets within the U.S. All of these come at higher operating margins than the traditional drug distribution business does and, because of that, there is, again, diversification of operating income streams coming into Cardinal.
EWING: There is one that I will continue to stick by just because they are so solid. It’s not a great performer. They don’t knock the lights out, but they are there year in, year out, and I believe they are going to continue to do that and that’s Sysco (Nasdaq: SYY).
They are the No. 1 food distributor in the country. They are going to continue to be acquisitive, which I think
is perfect for that business. Interesting