Lehman posts stock list

June 28, 2001 Posted: 1814 GMT

NEW YORK (Reuters) -- Lehman Brothers, burned by a more than 40 percent drop in its top 10 stock portfolio last year, unveiled a new list Thursday with far fewer technology and telecommunications names.

Lehman's list of "10 Uncommon Values" for 2001-2002 includes aluminum producer Alcoa Inc. (AA: up $1.95 to $40.41, Research, Estimates) and debit transactions processor Concord EFS Inc. (CEFT: up $2.21 to $56.25, Research, Estimates), as well as Cisco Systems Inc. (CSCO: up $1.05 to $18.98, Research, Estimates), the world's largest maker of Internet networking gear. The top 10 portfolio consists of stocks whose returns Lehman analysts believe will exceed those of the broader market.

Last year's list was sprinkled with Internet and telecom-related companies such as Agilent Technologies Inc. (A: up $1.41 to $31.26, Research, Estimates), Juniper Networks Inc. (JNPR: up $1.32 to $31.54, Research, Estimates), and Nortel Networks Corp. (NT: up $0.10 to $8.52, Research, Estimates).

The collapse of the technology bubble deflated last year's tech stocks. Agilent has lost 60 percent of its value in the past year, while Juniper has fallen 76 percent and Nortel Networks has declined 88 percent.

"Obviously it was a bad year," said Jeffrey Applegate, Lehman Brothers' chief U.S. investment strategist. "If the market is down, we tend to be down."

Nonetheless, he said, in 38 of the 52 years that Lehman has offered the list, it has beaten the Standard & Poor's 500-stock index, which he called "our performance bogey," or relevant benchmark.

"There aren't a lot of money managers on the planet who can point to a record like that," Applegate said.

Lehman made no conscious effort either to put tech and telecom in last year's portfolio or to shun those sectors this year, he said.

"Even though I'm the strategist, this portfolio is not encumbered by my macro overview," said Applegate, who has been one of Wall Street's leading tech bulls. "It's a bottom-up stock-picking" process.

Each of the firm's approximately 90 senior analysts contributed his or her best idea, Applegate said, with Lehman's investment policy committee then screening those picks.

Last year's top 10 portfolio has fallen 43 percent, compared with a 46 percent drop for the tech-laden Nasdaq Composite Index over the same 52-week period, Lehman said. The S&P 500 dropped 17 percent over that period.

In the years that the portfolio has beaten the S&P 500, it has returned 40 percent, compared with 19 percent for the broader index. Its overall return is 15 percent, compared with 8.9 percent for the S&P, Lehman said.

The top 10 list "is a concentrated portfolio," Applegate said. "It's riskier than the market." Although it is intended "primarily for a retail investor," he said he "would never recommend" devoting more than "a pretty small share" of assets to it.

Besides Alcoa, Cisco and Concord EFS, Lehman this year is recommending home furnishings retailer Bed Bath & Beyond Inc. (BBBY: up $0.97 to $30.02, Research, Estimates), cable television company Comcast Corp. (CMCS: Research, Estimates), motorcycle maker Harley-Davidson Inc. (HDI: up $0.30 to $48.33, Research, Estimates), media investment firm Liberty Media Corp. (LMG: Research, Estimates), power producer and trader Mirant Corp. (MIR: up $0.92 to $34.82, Research, Estimates), savings and loan company Washington Mutual Inc. (WM: up $0.78 to $37.59, Research, Estimates), and trash hauler Waste Management Inc. (WMI: up $0.80 to $30.50, Research, Estimates).

Cisco is attractive because the stock is "down hugely," Applegate said. Also, he said, a rebound in capital spending, which would boost the company's sales, is likely to occur in the third quarter based on historical patterns after the U.S. Federal Reserve begins to cut interest rates.

Applegate said Lehman analysts like Concord EFS because of the company's core business of processing electronic debit transactions, which they believe will supplant cash and check transactions at the point of sale.

Last year's top 10 list also included BEA Systems Inc. (BEAS: up $1.06 to $32.02, Research, Estimates), Cendant Corp. (CD: up $0.06 to $19.81, Research, Estimates), Gemstar International Ltd. (GMST: up $1.21 to $39.21, Research, Estimates), Hewlett-Packard Co. (HWP: up $0.87 to $27.32, Research, Estimates), Eli Lilly & Co. (LLY: down $0.52 to $73.50, Research, Estimates), Micron Technology Inc. (MU: up $2.01 to $41.75, Research, Estimates), and Tellabs Inc. (TLAB: up $0.63 to $17.26, Research, Estimates).

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