Last year was very good for us,” exclaims Clifford D. Mpare, managing director of Piedmont Investment Partners in Durham, North Carolina. “In 2004, we are looking for explosive earnings growth. For the first half of 2004, cyclical stocks will do well, but the second half will be challenging.”
Mpare, who manages a modest $1 million hedge fund for Piedmont, forecasted 2003 as “a stock picker’s market.” The group of stocks he chose for BLACK ENTERPRISE grew by 13.36% during the period beginning January 7, 2003 to January 6, 2004. By comparison, the Standard & Poor’s 500 gained 22%, and the Nasdaq rose 45%.
Mpare’s choice of Doral Financial (NYSE: DRL), the Puerto Rico-based bank that dominates the island’s mortgage business, spiked 58.59%, delivering a 3-for-2 stock split to investors. Home mortgage shoppers raced to Doral for its coveted low rates.
Cardinal Health (NYSE: CAH) failed to recover during last year’s market rally, posting a 2.44% decline in stock price from $61.81 to $60.30. “Cardinal did not make a whole lot of money, but it has an aggressive $1 billion stock buyback initiative. Management had to ratchet earnings expectations, and The Street didn’t like it,” Mpare explains. “Cardinal is a hold, and investors could still buy it and reach a $72 target in a year or so.”
Mpare says Alltel Corp (NYSE: AT) “was a bit of a disappointment in the telecommunications industry.” The stock dropped 11.26%, going from $54.95 to $48.76 per share. “With the collapse of WorldCom and AT&T, the whole sector suffered,” he says, adding that, “Even with a 3% dividend yield Alltel is a sell. A better company to put the funds in is Nextel Communications (Nasdaq: NXTL).” Mpare anticipates Nextel climbing to $40 within 12 months.
Mpare was surprised by the poor performance of BEA Systems (Nasdaq: BEAS). He says the company didn’t reach its earning potential, adding that the firm is “encountering a lot of competition from a very aggressive IBM.” The company’s shares lost 5.25%, going from $13.72 to $13.00. Although BEA Systems has a solid customer base for its e-commerce software, Mpare suggests that investors sell and consider moving their money into Oracle (Nasdaq: ORCL): “We like it and have a $20 price target.”
Investors still holding Qlogic (Nasdaq: QLGC) after its 27.15% increase need to pocket their gains. Mpare sold the semiconductor equipment manufacturer once it went up 25%. “We looked at the fundamentals and saw that earnings could increase about 12%. That’s not great so we’d rather put the money elsewhere,” he says.