Was Eight Good Enough?

How good were Black Enterprise's picks last summer? Here's the scoop.

It could have been our ticket to stardom if not for a couple of duds that got in the way. Last August, for our story “8 Stocks to Bank On,” we ran three screens and put together a group of winners and runners-up that we thought could indeed anchor a portfolio. And for the most part, our picks fared well. Of our core selections, Cisco Systems, the leading maker of computer networking equipment, rang up a total return of 67.7%, followed by Merck & Co. with 33.8%, Mattel with 32.1% and Johnson & Johnson with 21.3%. Still, our choice portfolio finished up 11.63% compared to 35.03% for the S&P 500. That would have turned $1,000 invested in each of the eight stocks into a total return of $8,930 over the last 11 months–a gain of $930.

The blame falls clearly on two laggards: 3Com Corp. and Cabletron Systems, two computer networking firms we were convinced looked good at the time. Wall Street analysts did too, until both companies disappointed investors with lackluster results. On top of that, Cabletron has had its share of management turnover and turmoil, while 3Com, which not long ago acquired modem maker US Robotics, has had a tough time making the merger work. It looks as if 3Com may bounce back, but we’d recommend selling out of Cabletron, which is still sorting things out.

Our runners-up fared better. Led by the Federal Home Mortgage Association (Fannie Mae) with a 40% gain and BankAmerica Corp. with 48.3%, the also-rans outdid the first team with a 14.65% total return for the same period. Again, a technology blunder did in our roster, this time semiconductor maker Atmel, which fell 28% since our story. As shaky as it may seem, we’d be patient with Atmel. Like its semiconductor peers, the company has seen its share of trouble stemming from Asia’s economic turmoil. The stock, however, seems cheap relative to its five-year growth rate and could bounce back.

SIZING UP OUR PICKS

Stock (Exchange: Symbol)

Current
Price*

Price at
Recommendation

Total Return

Current Value
of $1,000
Investment

Est. 5-Year
Annual EPS
Growth**

Cisco Systems (Nasdaq: CSCO) $73.25*** $65.50 67.7% $1,677 29.9%
Merck & Co, (NYSE: MRK) 120.5 91.38 33.8 8 1,338 14.4
Mattel Inc. (NYSE: MAT) 38.31 29.25 32.1 1,321 16.7
Johnson & Johnson (NYSE: JNJ) 71.5 59.50 21.3 1,213 13.7
Lockheed Martin Corp. (NYSE: LMT) 111.38 94.13 20.0 1,200 10.7
Wendy’s International (NYSE: WEN) 24.06 23.63 2.6 1,026 15.2
Com Corp, (Nasdaq: COMS) 34.25 41.63 -17.7 823 24.1
Cabletron Systems (NYSE: CS) 13.25 39.88 -66.8 332 17.9
Total 11.63 8930
* As of 4/30/98
** EPS growth rates from Zacks Investment Research
***Reflects stock split
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