09/09/96 PICKING STOCKS WITH LOUSY PR

PICKING STOCKS WITH LOUSY PR

Companies with bad public relations? Money managers Mike Connor and Jerry Ballan love them. The Street often overlooks such outfits, say the officers of C-B Partners, a New York hedge fund.
So far, the strategy appears to be working. C-B Partners has outpaced the market so far this year, chalking up a hefty 29% gain, compared with 11% for the Dow Jones industrial average and 8% for the NASDAQ composite.
Although ignored, their current picks have ``great upside potential,'' says Ballan. Among them: Lazare Kaplan International (LKI) the nation's largest cutter and polisher of natural gem diamonds and the top supplier to Tiffany's; Hovnanian Enterprises (HOV), a builder of houses and apartments; and Cybex (CYB), a maker of fitness and physical therapy equipment.
Lazare Kaplan, controlled by Chairman Maurice Tempelsman and his son, Leon, the president, who together own 64%, signed an unprecedented 10-year pact in mid-July with Russian gem producer AK Almazi Rossii Sakha. The deal calls for Lazare to build and manage a diamond-cutting factory in Moscow. It will supply Lazare with at least $45 million worth of stones a year. Lazare will market the diamonds through its global network. The Export-Import Bank will guarantee the financing of a $60 million purchase of U.S. mining equipment for AK Almazi.
The company has hired UBS Securities to explore ``growth opportunities,'' including mergers and acquisitions, says a Lazare official. Ballan figures the Russian pact will add some $70 million to yearly sales. For the year ended May 31, 1996, Lazare posted sales of $266.3 million. Excluding the Russian project, Ballan sees Lazare making $2 in fiscal 1997, and $3 in 1998. Now at 14, the stock is worth 24, says Ballan.
Hovnanian's shares, at 13 in early 1994, have dropped to 6 because of disappointing earnings caused by a housing slump. But with its Northeastern markets perking up, Hovnanian is expected to rebound. He figures it will make 75 cents a share in the year ending Oct. 31, 1996, and 95 cents in 1997. And he sees the price doubling in a year.
Cybex, known as Lumex before selling a unit also called Lumex in April for $40.8 million, may be preparing for another deal: Cybex has retained Smith Barney as investment banker, says Connor, to find ways to maximize value through a merger or outright sale of the company. CEO Ray Elliott is ``a turnaround expert who's very much shareholder-oriented,'' says Connor. The stock, at 10, should hit 18, says Connor. He sees Cybex making 50 cents a share this year and $1 next. At that rate, Cybex--along with C-B's other picks--may not stay in the doghouse for long.
BY GENE G. MARCIAL