Psst! If you want a stock to hold for the next 10 years, try Shaman Pharmaceuticals or Cheung Kong Holdings Ltd.
Never heard of them? Few had heard of Sun Microsystems Inc. or Tandem Computers Inc. 10 years ago, and look at them now.
Shaman and Cheung Kong are two of the stocks selected by chief investment officers who were asked to select the two stocks they would buy if they could own only two and had to hold them for 10 years.
Only two stocks - American Telephone & Telegraph Co. and American International Group - were mentioned by more than one chief investment officer interviewed by Pensions & Investments. More revealing than the individual stocks, however, are the clear, broad themes that emerge and the reasons behind some of their selections.
Common economic or investment themes underlying many of the stock selections by the CIOs include:
|A strong and clear-cut interest in and fascination with the potential for investment and product markets in mainland China;
|The belief that financial services will benefit from an aging baby boom generation and global expansion into previously untapped markets; and
|A high level of interest in technology issues, which CIOs expect to form the building blocks for the digital information superhighway in coming years.
It is impossible to determine if the 20 CIOs have selected the next Amgen Inc. or IBM Corp. But selections ranged from the more predictable large-capitalization companies to the more obscure, such as Shaman Pharmaceuticals, a socially conscious firm that searches for chemical compounds in the tropical rain forest while working with native healers known as "shamans."
Perhaps the most noteworthy theme winding through many seemingly unrelated stock picks, by both domestic and international investment specialists, was the acknowledged potential of mainland China.
Geoffrey Wong, director-investment technology at Koeneman Capital Management in Singapore, said his selection of Cheung Kong Holdings Ltd. is tied directly to the outlook in China.
"The most important 10-year development in our region, and perhaps the world from an investment standpoint, is China." China, Mr. Wong added, is in the process of evolving from a communist system to free markets and from a low- to middle-income standard of living for nearly a quarter of the earth's population.
Cheung Kong is the flagship company of Hong Kong businessman Li Ka Shing, who reportedly has close ties to Beijing political leaders. The company is involved in property acquisition, transportation and telecommunications in Hong Kong and China.
Robert Rust, chief investment officer at Orleans Capital Management, New Orleans, said China already is second only to the United States in the purchase of "beepers," and the country represents vast potential for the telecommunications industry in the next several years. That's why he picked Motorola Inc., a leader in cellular telephones and electronic communications, as one of his two stocks.
Two CIOs selected American International Group, a diversified financial services conglomerate with an emphasis on insurance, as part of their two-stock portfolio because of its early exposure to the Chinese market.
Peter J. Anderson, CIO at IDS Institutional Retirement Services, Minneapolis, said AIG has major exposure to Asian and Chinese markets. "They were there early 26
Continued from page 3and we expect business will boom for them. They also have superb management. We look for significant consolidation in the financial services industry, and AIG will definitely be one of the survivors," he said.
Maceo Sloan, CIO at NCM Capital Management, Durham, N.C., selected AIG for essentially the same reasons.
As might be expected in the aftermath of the proposed acquisition of Tele-Communications Inc. by Bell Atlantic Corp., there was strong interest expressed in technology-related stocks the CIOs believe will form the building blocks of the information highway of the future.
Companies such as Intel Corp., Scientific-Atlanta Inc., AT&T and TCI were among several high-tech picks.
AT&T showed up as one of the top stocks selected by Herb Hanson, CIO at Hanson Investment Management Co., San Rafael, Calif., and by Rolf Bjelland, CIO at the Lutheran Brotherhood, Minneapolis.
Mr. Hanson said AT&T is "in an ideal position" to capitalize on the anticipated boom in the telecommunications industry worldwide.
Mr. Bjelland said he expects the communications industry to expand "manyfold" during the next 10 years, and believes AT&T has laid a successful groundwork for healthy growth potential.
Kirk McCowan, CIO at Crestone Capital Management Inc., Denver, said he selected Scientific-Atlanta as one of his two 10-year stocks because "as the multimedia phenomenon continues, Scientific-Atlanta will make the majority of boxes and switches on televisions and other electronic equipment to support interactive television, voice and video equipment for a long time to come."
"You have to have a technology stock if you are going to look out 10 years," said IDS' Mr. Anderson. He said Intel is the "premier" technology stock with its "huge cash flow" and substantial reinvestment rate in both research and development and in ultramodern manufacturing facilities.
Several CIOs selected technology companies with more practical, everyday applications.
Thomas Wright, CIO of Thomas Wright Asset Management Inc., Cooperstown, N.Y., said he favors Automatic Data Processing Inc. ADP is one of the nation's largest computerized transaction processing firms. Last year, he said, ADP processed 16 million paychecks and IRS W-2 forms. "ADP just completed 129 consecutive quarters of double-digit earnings-per-share growth," said Mr. Wright. "No one else has even approached that."
Martin D. Sass, CIO at M.D. Sass Investors Services Inc., New York, selected two technology-oriented companies for his two-stock 10-year portfolio - TCI and Quick Response Systems Inc.
Mr. Sass said he has owned TCI stock for some time and expects it to "continue to be a leading player in the fastest growing, important strategic industry over the next 10 years." The company will play an even bigger role in the development of the "information super highway" because of the Bell Atlantic acquisition bid.
He also likes Quick Response because it "is only beginning to scratch the surface in terms of potential growth." The company is a leading supplier of electronic data interchange systems to the retailing industry that aid in electronic inventory control and ordering.
Financial services for both domestic and foreign applications also drew substantial interest from the CIOs.
Mr. Hanson selected as his second stock shares in United Asset Management Corp., which acquired Hanson two years ago. Mr. Hanson said he would have chosen UAM regardless.
"It is a unique business which owns 34 institutional asset management firms and is now expanding into Europe. Dividends have increased every six months for the past seven years, and as a business it is here to stay. It is unique in the way it operates and it only has about 20% of the potential market. I can't see anything derailing their story," said Mr. Hanson.
John W. Rogers Jr., CIO at Ariel Capital Management Inc., Chicago, selected T. Rowe Price Associates Inc. as half of his two-stock portfolio.
"They are extraordinary at what they do. The firm has the most diversified group of mutual funds, and I like them because they know what they are doing. The baby boomers will eventually start putting some money away, and T. Rowe Price will capture a large percentage of that business," said Mr. Rogers.
Mr. Rust of Orleans Capital Management went with Primerica Corp. for many of the same reasons. He said demographics favor Primerica with its financial services, brokerage and insurance operations.
Mr. McCowan at Crestone said his second stock selection is John Alden Financial Group. The company "will be a pioneer at and successful in the no-load life insurance concept, which we believe will gain increasing favor in the next 10 years. They are positioned well in the small group health insurance area - health care reform notwithstanding. We see them as survivors and winners in this financial services area."
The most offbeat stock selection and one with potentially the greatest room for becoming the "next Amgen" during the next 10 years is a pharmaceutical stock selected by Steven Koenig, CIO at Informed Investors Group, Seattle.
Mr. Koenig said Shaman Pharmaceuticals, San Francisco, uses plants found in South America's tropical rain forests to develop new drugs.
Shaman has a "unique approach" to research and development. Working with native healers or "shaman" to identify plants that treat various afflictions, the company's ethnobotanists and physicians research and document the use of native plans and collect samples for further testing in the company's laboratories.
Some plants have been used in villages for many years, and some test compounds have had a high success rate. Shaman Pharmaceuticals has tested more than 500 plants and more than half have shown drug potential, said Mr. Koenig. Shaman also is dedicated to preserving the rain forest and established non-profit agencies to help manage and develop plant biodiversity and preservation.
"Ten years from now this company could be another Microsoft or Amgen," said Mr. Koenig.