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Talking Stocks: Lemonides
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January 28, 2000: 6:25 p.m. ET
Chief investment officer of M&R Capital answers your equity questions
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NEW YORK (CNNfn) - Each Friday at 1 p.m. ET, CNNfn viewers are invited to call in to the "Talking Stocks" segment and ask the guest expert questions about equities. Here, Charles Lemonides, chief investment officer for M&R Capital, answers your e-mails.
Name: Jerry, New York
Question: Texas Instruments (TXN: Research, Estimates)
Lemonides: TXN was left nearly for dead 10 years ago. Now they are on the Top 10 lists of every portfolio manager. They have developed great products and, at 10 X sales and 50 X earnings, the good news is already in the stock. I'd look for the next sleeper.
Name: Louise, New Hampshire
Question: Campbell Soup (CPB: Research, Estimates)
Lemonides: Food companies are as out of favor as any other group has been in a long time. Patience will be required. Challenges come from many fronts, none more important than the fact that we're operating in a deflationary environment. That said, if you're patient, I don't see how the stock won't work well, given the current valuation.
Name: James, Texas
Question: Sysco Corp. (SYY: Research, Estimates) My wife is a Sysco employee. She receives a 10 percent discount when purchasing company stock. What is your forecast for Sysco stock?
Lemonides: There's a lot to be said for loyalty toward your employer, but the food distribution business is a brutally competitive one. Relatively speaking, the stock is well valued, with an equity cap approaching 60 percent in revenues, almost twice its competitors'. But I think you can be facing some downside risk with this stock.
Name: Cristy, California
Question: Oracle (ORCL: Research, Estimates)
Lemonides: In the current enthusiastic investor environment, stock splits are being viewed as sure things for creating incremental value. I hardly think that's justified and, given the long road Oracle has traveled, I think the stock is probably more than fully priced, even overpriced. I don't think it represents a bargain.
Name: Hari, Illinois
Question: Tyco (TYC: Research, Estimates), Barnesandnoble.com (BNBN: Research, Estimates)
Lemonides: Tyco -- it's in an interesting category of quality companies that have disappointed recently, whose stocks have been brutally punished. I think the downside is more likely overdone at this point, although I'm not close enough to the company to be sure. It could see the mid 50's before the year-end.
Barnes and Noble -- the Internet is a fantastic enabling tool for both business and consumers (the advantage for consumers is that they cold be very price-sensitive in their purchases). I expect that fact to pressure margins at most e-tailers. Consequently, even though BNBN is valued much lower than many others, I still think that is has a downside risk from a price perspective.
Name: Gary, New York
Question: McKessonHBOC (MCK: Research, Estimates)
Lemonides: I think the lesson in McKessonHBOC isn't so much about the opportunity for that equity, but for many of today's market darlings. The stock was widely loved a couple of years ago and the stock was priced at 12 times earnings. The stock has been cut into 1/4 of its value now. They may be an opportunity here on the long side, but I think that the most interesting part of this is what it tells you about today's high flyers.
Name: Dawn, Iowa
Question: Cisco Systems (CSCO: Research, Estimates)
Lemonides: Yes, they have helped built the Internet and the Internet will be a transforming item, but I think the story may have already been pretty much told.
Name: Sid, New Jersey
Question: Enron Corp. (ENE: Research, Estimates) What is going to fuel growth in utility companies?
Lemonides: The gas pipelines have had a great run. The group was terribly out of favor as little as a month ago. In fact, we own two of them -- Williams Cos. (WMB: Research, Estimates) (which has had a good run) and Columbia Energy (CG: Research, Estimates). I don't expect Columbia Energy to remain independent beyond year-end and I think that might be a better place to go.
Name: Kramer, Texas
Question: Sun Microsystems (SUNW: Research, Estimates)
Lemonides: I'm tempted to answer: "see Cisco above," but in fairness to SUNW, the valuation is less than half that of Cisco and the prospects probably as good. So while the story is well known, I wouldn't be quite as skeptical there.
Name: John, New Jersey
Question: Western Digital Co. (WDC: Research, Estimates)
Lemonides: At this point you own a call option. If Western Digital can deliver a competitive product, it's clear the upside is 10 times today's price. The problem is that if they can not, your time value will erode.
Name: Arnold, New York
Question: Bank One (ONE: Research, Estimates) ONE
Lemonides: The financials are as out of favor as any group and Bank One (with a yield of nearly 6 percent) as out of favor as any of them, but ONE has company-specific challenges anyway. My favorites in that sector are: Chase Manhattan (CMB: Research, Estimates), Washington Mutual (WM: Research, Estimates) and Fidelity National Financial (FNF: Research, Estimates) (the last being a title insurance company). I'm a strong believer that today's interest rates are at the high side and that the U.S. economy will continue to grow without inflation for years to come. Consequently, the concerns regarding interest rates are much more than overdone.
Question: Enzo Biochem Inc. (ENZ: Research, Estimates)
Lemonides: I have rarely put money in the biotech area because the really critical question lies in the valuations of whose drugs are better and I just don't have the expertise. Without knowing the real prospects is almost like investing blind, so I avoid them when I can help it.
Name: Kelly, Florida
Question: Applied Digital (ADSX: Research, Estimates)
Lemonides: The chart makes this stock look like an awful lot of fun. I guess they've captured someone's attention and, actually the operating results, at least on the revenue side, are impressive. Their market segment in wireless Internet access will see explosive growth. They may be an exciting story here.
Name: Art, New York
Question: MCI Worldcom (WCOM: Research, Estimates)
Lemonides: Interestingly enough, WCOM has not participated in the tech/telecom stock market explosion we've seen over the past year. I think they're probably being overlooked. Mr. Ebbers has shown fantastic foresight before and I doubt he's lost his touch. While the FON acquisition has put a damper on the stock near term, we saw the same pattern when the companies bought MCI. Yet investors who stayed with it did extremely well.
Name: Ted, Wisconsin
Question: Intel Corp. (INTC: Research, Estimates)
Lemonides: I believe the risk in Intel is that the shares at some point will represent dead money for several years. We all know Intel is a great growth company, with great prospects, but two years ago you would've said the same thing about Gillette, Pfizer, Coke, etc. and when those stocks got ahead of themselves on a valuation basis, they've experienced a two-year hiatus. That's the risk in Intel.
Name: Praveen, Virginia
Question: 3Com (COMS: Research, Estimates)
Lemonides: 3Com's products can really catch investors' imagination. Wireless Internet access will be a fantastic growth opportunity and the company is not positioned badly. It trades at less that 30 times sales, maybe not cheap by conventional measures, but cheap compared to the other technology stocks out there. There's a big "if" on the execution side, but a big upside if it happens.
Name: Barbara
Question: Global Crossing (GBLX: Research, Estimates)
Lemonides: The bandwidth explosion is real -- even some of us stuck in the mud of value investing know that, and Global Crossing will get meaningful market share. I just think the smart way to get exposure is through Williams Cos., with a major stake in Williams' stock.
Name: Jim, Michigan
Question: Nortel Networks (NT: Research, Estimates)
Lemonides: Bell Canada announced on Wednesday that it will be spinning off its Nortel stake to shareholders. That stake is worth nearly $80 of Bell Canada shares. The rest of BCE is probably worth better then $40/share. So I think the better way to get NT is through BCE. While this opportunity has been there for some time, the fact that Bell Canada has resolved to spin this stock out, provides clarity on the time-frame.
Question: What's your short-term outlook on Knight Trimark (NITE: Research, Estimates)?
Lemonides: This stock is the online investors' favorite, because they are so close to what the business does. The company will be very successful but, while the stock is cheap relative to its old high, it's hardly cheap relative to any other valuations measure. Its brokerage firm competitors trade at single digits. Meanwhile, its price to book value is above any traditional brokerages. I don't think you're being offered a particular opportunity.
Question: What is your long and short opinion on Computer Associates (CA: Research, Estimates)?
Lemonides: I've never been a big fan of their business model. The barriers of entry are tiny, the margins are capricious, the value-added is always an open question. And if business confidence ever does soften, CA will see the brunt of the downturn. This is probably a very cyclical company trading at a not so cyclical valuation.
FN welcomes your e-mail questions for our "Talking Stocks" guest. Please include your first name, state and one stock question per e-mail. Keep in mind, "Talking Stocks" is for specific stock questions only.
If you do not see an answer to your e-mail here it is because our guest does not cover the company. 
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