Opportunity Stocks

You probably hate the stock market so much right now that you don’t want to hear about five New York companies that can make you money. But this is exactly the time when you should be listening, because the market’s latest bout of pessimism has created some extraordinary values, particularly in those companies that have nothing to do with technology.

Understand that if you buy stocks now you are making a bet on how the companies behind the stocks will do six months from now. Stocks tend to look forward; they forecast prospects half a year out. So you shouldn’t care that the Federal Reserve’s interest-rate cuts haven’t helped the economy yet. The gains are ahead of you if you have the patience to hold on to these stocks for a few months. More important, in every case, if the economy doesn’t respond to the rate reductions, these stocks should still work because of intrinsic changes going on at the companies.

AOL TIME WARNER From the beginning, AOL was the different dot-com. While everyone else on the Web wanted to give their sites away, AOL insisted on charging. When other sites had to give up charging because no one would pay, AOL raised its price, and it stuck. But all that was child’s play compared with the ultimate coup: bagging Time Warner with its overinflated stock before the dot-com boom went bust. AOL swallowed up Time Warner and managed to move out of the Web and into a brick house before the collapse. Now it is applying the same kind of cost control and attention to detail that it exacted within its own ranks to the bloated corporate infrastructure of Time Warner. That allows the company to beat earnings estimates even as almost every other media company gives in to the tougher environment and misses Street forecasts. The recent dip below $40 gave you a chance to get in at prices that may look downright cheap if the economy takes off.

PFIZER Okay, so if the economy doesn’t take off, do you have to lose money? Pfizer doesn’t care where those pesky interest rates go. It’s going to make money for you no matter what. Wall Street works in strange ways. When one company buys another company, there’s a tremendous amount of cover as Wall Street forgives the first year of any merger. That’s where Pfizer is now with its purchase of Warner-Lambert. Pfizer’s setting itself up for a banner year as it deals with some huge costs and puts its phenomenal sales force on Warner-Lambert’s best drugs, particularly Lipitor, which will be used for much more than just lower cholesterol. (According to studies, patients treated with Lipitor after a heart attack are less likely to suffer further heart attacks and strokes.) Ho-hum? Okay, how about this? Pfizer has a new anti-schizophrenic drug, Geodon, that just got the nod for oral use. While Lilly and Johnson & Johnson tried hard to stop this product, I think it will become the drug of choice in this multi-billion-dollar market because it doesn’t promote weight gain. As no one expects much of Geodon on Wall Street, when “the Don” – as the shrinks like to call it – delivers, the Street will be wowed by the results.

MERRILL LYNCH Mother Merrill has stunk up the joint all year. But the sell-off is undeserved. Merrill’s a repository for billions of dollars in sidelined wealth that will be put to work in equities and bonds when the short rates go so low that they rival your checking account. Merrill is statistically cheap, recently selling at only eleven times next year’s already reduced earnings. And while Merrill’s stock bides its time, the competition has been decimated, particularly those online upstarts that had threatened to take away market share during the dot-com boom. A sustained upturn in the market will mean bountiful profits in 2002, something no one on Wall Street besides me is looking for.

PHILIP MORRIS If it were just its dividend alone, currently 4.5 percent, Big mo would have to be considered a possible buy, especially if you expect Fed Fund rates to drop to 3.5 percent, as I do. But mo has much more going for it than that. First, it is a real growth company again, with earnings gains in the low teens. Second, American juries seem to be less interested in paying people for smoking than they might have been a few years ago. (Even The Sopranos acknowledged in a recent episode that there’s no justice if people who smoke get paid for the damage they inflict on themselves.) And if that doesn’t do it for you, consider this: In a month, Philip Morris will spin off Kraft, and you will see that smoke’s been obscuring the fastest-growing food company in the world. Hurry, though, because if you wait for the IPO, you will miss a lot of the appreciation that I expect to come in the next few weeks.

VIACOM How many companies had a president who actually came out in the past month and said that business is on plan and making the numbers won’t be a problem? Just one. Viacom’s president and chief operating officer, Mel Karmazin, recently said that because of better programming and lots of cost-cutting, Viacom would have no problem making Street estimates. Hey, that’s the good news. The great news is that coming out of a recession, media stocks are historically the top performers, and the ones that come out of the gate fastest are the ones that held up the best in the sell-off. That means Viacom has the best shot at returning to its old highs of just about any company in the S&P 500. Keep in mind that both Mel and Sumner Redstone have a lot more on the line than most execs. Not only are they massive stockholders, but each of these guys seems to live and breathe their stock price, and sources say they regard the $4 handle – Street slang for the first number in the stock price – to be a badge of dishonor that they will do everything in their power to change positively by year’s end.

Check out TheStreet.com’s “10 Questions” feature this week. Bill Lippman, co-manager of the Franklin Balance Sheet Investment Fund, is on the hot seat. Available for free at www.thestreet.com. James J. Cramer is co-founder of TheStreet.com. At the time of publication, he owns Merrill Lynch, Philip Morris, and AOL Time Warner. He often buys and sells securities that are the subject of his columns and articles, both before and after they are published, and the positions that he takes may change at any time.


Opportunity Stocks