companies who have fallen out of favor in the stock market, yet nonetheless are well run and have great prospects ahead. Electronic Data Systems (NYSE: EDS), a computer services company, fits that bill. Even though every facet of the computer business seems to be booming, EDS has lagged after being spun off from GM. The company’s debt is low, he says, its margins high and with a projected growth rate of about 15%, the stock is selling at only 16 times its estimated earnings.
Pepsico (NYSE: PEP) is another example. Holland says the company should grow its earnings at around 15%, owing in part to its dominance m snack foods and its solid soft-drink business. Fast-food restaurant operations, however, have hurt Pepsi, going so far as to damage fourth- quarter 1996 earnings. With Pepsi looking to spin its fast-food business off, he thinks the stock will soon prosper.
Finally, Holland likes finance stocks and thinks American International Group (NYSE: AIG) is a good bet in the group. The company is growing its earnings 13%-15%, and shares are selling at 17 times 1997 earnings. Management is well respected, he says, and after two years of back-to- back 20%-plus stock market gains, AIG has all the makings of a good core holding.
So what about a market where profit increases will pale in comparison with 1995 and 1996? “It’s an environment that separates the great money managers from also-rans,” says Holland: “Our philosophy is that money is made in bear markets and not bull markets. We hope to participate in bull markets and outperform in bear markets, so that over a complete market cycle, we aim to be in the first quartile of all managers.”