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HERE'S A HUNDRED GRAND. NOW MAKE A SHOPPING LIST

Four savvy stock-pickers put their (play) money where their mouths are

What stocks would you choose if you had to invest $100,000 this New Year? That's the question BUSINESS WEEK asks four top investors each December. Their job is to beat their rivals by selecting a list of 10 stocks for the coming 12 months.

It's not easy. The past two years were terrific for the stock market, with the Standard & Poor's 500-stock index soaring 34.1% in 1995 and 17.6% from Dec. 11, 1995, through Dec. 13 1996. Among last year's group, Gary L. Pilgrim, who manages the PBHG Growth Fund, was the big winner. His portfolio was up 37.8% through Dec. 13, excluding dividends. Fueling his performance were six hefty gainers, ranging from a 110% pop for McAffee Associates to a mere 51% gain for Blyth Industries.

The other managers didn't even come close. Desmond J. Heathwood, chief executive of Boston Partners Asset Management, posted an 8.2% gain. His biggest winners were IBM, up 59%, and Lehman Brothers Inc., up 39%. Richard S. Strong, the Strong Funds chairman who manages the Strong Discovery Fund, was up just 4.1%, without dividends. His worst bet was Exide Corp., down 52%, while his best was Harley-Davidson Inc., up 65%.

Although the contest calculates performance as if the managers maintained their positions throughout the year, Strong says that in his own portfolio he actually dumped Exide before it went south. Richard Farrell, director of Far Eastern equity investments at Guinness Flight Global Asset Management Ltd., brought up the rear with a record of minus 15.6%. He was dragged down by Korean and Japanese stocks, such as Samsung Electronics and Nippon Telegraph & Telephone Corp.

While this year's managers are concerned about the heady market, they all believe that there are still stocks out there that are worth buying.

CASH FLOW IS KING
In addition to overseeing $3.3 billion in Legg Mason mutual funds, William H. Miller III keeps his hand in the market by managing the Legg Mason Value Trust fund. Through Dec. 13, it's up a handsome 36.3%. Miller is a confirmed value investor, who emphasizes the free cash flow that a company generates. Miller likes IBM. While the market trades at 40 times free cash flow, the computer giant is trading at a multiple of 12. ''That's way too low for a company like IBM,'' says Miller, who thinks the company will go to 190 in the next year.

Miller's favorite sector is financials. ''We still believe financials will be the single best-performing sector of the decade,'' he says. His funds' largest holding now is Fannie Mae, the Federal National Mortgage Assn. He still thinks that its rapid growth has not been recognized by the market, which is why it is trading at a huge discount.

Miller is buying Circus Circus Enterprises Inc., the gaming giant. He expects its cash flow to triple in the next five years. ''In the next few years, you can make three to four times your money in this company,'' he says.

Miller has a few controversial picks. Cott Corp., a Toronto maker of private-label beverages for the likes of Safeway and Wal-Mart Stores Inc., is a fallen angel that dove from 37 to 7. The company is in the midst of a turnaround and is poised to grow quickly in two new businesses, alternative beverages and private-label foods. Despite negative publicity, he recommends America Online. Miller thinks AOL's 50% market share of the consumer online business will allow it to stay ahead of Prodigy Services, CompuServe, and even Microsoft. Best of all, AOL will generate positive cash flow in the next two quarters, he believes.

EMERGING BULL
Marianne L. Hay admits to some wariness about the outlook for U.S. stocks in 1997. But when it comes to emerging markets, Hay is a steadfast bull. The reason, says the Scottish-born managing director of Morgan Stanley Asset Management Ltd., is ''high earnings growth and really cheap stocks.'' On average, developing economies will expand by 6% next year, she thinks--two percentage points better than those in the industrial world.

Hay, 44, who co-manages the closed-end Morgan Stanley Emerging Markets Fund along with Madav Dhar, is looking for bargains to spice up her $800 million fund, which has been in the doldrums ever since logging a spectacular 89% gain in 1993. A victim of the spreading investor disdain that has afflicted many international closed-end funds lately, Morgan Stanley Emerging Markets' price per share has fallen 10% in 1996, to $14.25, even as its net asset value has risen 13%, to $16.

Hay likes Brazil, where she thinks inflation ''will be in the single digits'' in 1997 after hitting 3,600% only two years back. Her top picks: Telebras, the phone monopoly, and Eletrobras, the national electric company. With price-earnings ratios of 65 and 12.2, respectively, ''they're among the cheapest [utilities] in the world with the best growth potential.'' She is also bargain-hunting in India's beaten-down market, where she likes Housing Development Finance Corp., the No.1 maker of mortgages for middle-class homebuyers. She has gravitated toward Sasol, a South African chemical maker whose exports are being helped by the weak rand. And she likes Eregli, a state-controlled Turkish steel manufacturer that may well be up for privatization.

Hay is most enthusiastic about Russia--''tomorrow's growth story,'' she calls it. She advises having a look at a trio of companies with American depositary receipts--electricity producer Mosenergo, gas exporter Gazprom, and Lukoil, the country's leading producer of crude. But she is positively exuberant about Surgutneftegas, another oil company that expects to have ADRs by 1997. Its market capitalization is just $2.2 billion--or only 22 cents a share. ''One of the most undervalued energy situations'' in Russia, she says.

SMALL-CAP IS BEAUTIFUL
William K. Jurika's formula is nothing if not consistent. ''I'm looking for things that have seen their corrections and will see significant earnings growth,'' says the founder of Oakland (Calif.)-based Jurika & Voyles Inc., which manages $5.5 billion. The firm's mini-cap fund is up 28.4% through Dec. 13. He likes small caps because they offer better bargains.

A prime example is ECI Telecom, a NASDAQ-listed vendor of telecom gear that has slumped because of escalating tensions in the Middle East. But Jurika points out that 90% of its business is outside of Israel. He expects an 18% growth rate in 1997. A higher-risk play is System Software Associates, which makes software for manufacturers. Owing to a big loss this year and a delay in upgrades, the stock has dropped from 26 to 13. But this lower-end competitor to Oracle Corp. has gotten very good product reviews. ''If it succeeds, it will be a big winner--or we could lose half our money,'' says Jurika.

In the health-care area, Jurika likes Apria, a home-medical-equipment company. Its stock has been hit lately as a result of a merger, but Jurika thinks it will earn $1.80 and grow 20% in 1997 as it keeps buying mom-and-pop operations around the country. Medpartners, a Los Angeles-based physicians practice group, will benefit from the coming consolidation of individual doctors into groups. Living Centers of America, the fourth-largest nursing home company in the country, will grow by 15% in 1997.

Two fast growers in more prosaic businesses that Jurika is high on are Quanex, a low-cost producer of special metal products such as air-bag canisters that could grow 15% in 1997; and Greenfield Industries, which makes fine industrial drills that have high replacement rates and could grow 20%.

BEARISH IS BETTER
The only serious bear of the group is Eric E. Ryback, the president of St. Louis-based Ryback Management Corp. He is convinced the market is overvalued and could tank sometime next May. ''We think we are on the cusp of a bear market here,'' he says. ''A healthy correction would be rather nice. That's what we live for.'' It's no surprise that the $4 billion in Ryback's six mutual funds are positioned to do well in bear markets. His Lindner Growth Fund is still up 19.1% through Dec. 13, and the Lindner Bulwark Growth Fund is up 28.1%.

Ryback says he looks for issues that ''have been neglected in some fashion, and we're waiting for investors and analysts to discover them next year.'' Surely only the brave would buy Northeast Utilities, the troubled Connecticut nuclear-power-plant operator whose stock is down from the mid-20s to 11. He thinks the company will report earnings close to $2 a share by mid-1998, which will drive the stock back up. El Paso Electric, which just came out of Chapter 11 bankruptcy earlier this year, will earn over 60 cents next year, is aggressively reducing its debt, and could reinstate its dividend, Ryback believes. He's looking for the stock to double and wouldn't be surprised by a takeover.

Among his smallest picks are Cardiometrics Inc., which has a Food & Drug Administration-approved product that can be used to repair clogged arteries. He also likes Rexel Inc., the fifth-largest electrical distributor in the U.S. He points out that it is growing by buying rivals and says he expects it will generate $1.35 in free cash flow per share in 1997, vs. $1.10 in 1996.

Ryback's favorite industry group is natural gas, a classic situation of a commodity in short supply. He especially likes Enserch Exploration Inc. He believes the company could make a huge gas discovery in its deepwater fields. Another natural-resources play is Uranium Resources Inc., the lowest-cost uranium producer in North America.

Ryback's only overseas pick is Argentina's Tescorp. He thinks that this owner and operator of cable systems in rural Argentina is an attractive takeover candidate, especially with regulatory changes that allow foreigners to buy it.

By Leah Nathans Spiro and William G. Glasgall in New York



RELATED ITEMS

TABLE: William Miller's Portfolio

TABLE: Marianne Hay's Portfolio

TABLE: William Jurika's Portfolio

TABLE: Eric Ryback's Portfolio

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