Turtle power

Did slow and steady work for Ariel's McKissack?

Talk about getting paid for going out on a limb. In Private Screening last November, Eric McKissack, one of the portfolio managers of the Ariel Appreciation Fund, reached beyond some of the oft repeated picks–Cisco Systems, Gillette, and Microsoft-to gather up a scrappy bunch of companies that Wall Street doesn’t focus on as intently. The strategy, coupled with his value investing criteria, worked. Led by Century Telephone, Allergan and Safety Kleen, McKissack’s picks shot up over 38.9%, compared to 22.5% for the S&P 500 over the same period.

Needless to say, McKissack’s companies went through a lot of changes. McKissack says Allergan (NYSE: AGN) is still a good bet, particularly after the success of its post-glaucoma medication. He has a 12- to 18-month price target in the low $60s for the stock.

Hasbro (AMEX: HAS), he says, is worth holding on to, since it has what it takes to reach $49 in the next year to year and a half. The company’s Small Soldiers action figures are racing off toy store shelves, and its Teletubbies and new Star Wars figurines are expected to do well.

McKissack says Lee Enterprises (NYSE: LEE) is also still attractive and could reach $43, particularly if the company pushes divestiture of its broadcast properties. Century Telephone (NYSE: CTL) looks good as well, given key acquisitions that have boosted its presence in the rural telephone market.

The lone stock McKissack would shed is Safety Kleen (NYSE: SK), which was taken over by Laidlaw Environmental (Laidlaw kept the Safety Kleen name for the entire company). McKissack says the company is a bit too debt-ridden for his tastes. When Laidlaw took over, it paid $18.30 for each share of Safety Kleen stock. In addition, Laidlaw gave Safety Kleen shareholders 2.8 shares of its stock, which was valued at $3.75 as of press time. Therefore, one share of Safety Kleen stock bought at the recommendation price of $19.50 would have been valued at $28.80 after one year.

Stock (Exchange: Symbol)

Current Price*

Price at Recommendation

Total Return

Current Value of $1,000 Investment

Est. 5-Year

Annual EPS Growth**

Allergan (NYSE: AGN)

$50.38

$30.81

65%

$1,650

11%

Hasbro (AMEX: HAS)

36.82

28.56

29.9

1299

13.4

Lee Enterprises (NYSE: LEE)

29.13

25.50

16.2

1162

12.0

Safety Kleen NNYSE: SK)

3.75

19.50

47.7***

1477

14.5

Century Telephone (NYSE: CTL)

49.94

36.75

35.9

1359

14.6

Portfolio

38.9%

$6,947

* As of 8/18/98. **EPS growth rates from Zacks Investment Research *** Total return reflects merger.
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