Agilent Technologies, Hewlett-Packard and Nortel Networks were among the largest companies listed among the firm's 10 stock picks, selected for their potential ability to outperform the market during the next 12 months.
"There's a lot more people with cell phones, on the Internet, and demanding high-speed access," said Jon Duskin, chairman of Lehman's investment policy committee, which narrowed the list to 10 companies. "So the big tailwind is the infrastructure has to be built out. That's one of the common threads among a lot of these names."
Lehman starts the three-month process by asking its 70 to 80 analysts to submit names of companies they believe will outperform the broader market during the next 12 months. The investment committee then chips away at the list, sizing up such areas as a company's fundamentals to technical analysis on the stock's performance.
Since it began in 1949, the list has shown an average rate of return of 17 percent, compared with 9.5 percent by the Standard & Poor's 500.
Last year, the value of the chosen companies rose by 14.6 percent, compared with an increase of 5.7 percent by the S&P 500 index and a 4.2 percent decline by the Dow Jones industrial average.
Many of the stocks picked this year received a small boost in trading today. Following are the companies that made the list, how their shares performed today, and what a Lehman analyst described as the catalyst for the stock:
Shares of Agilent Technologies, a test and measurement company for industries such as semiconductors and health care, rose $4.44 to $79.88. In the past year the company's stock has traded as high as $162 and as low as $30.
Agilent "should benefit from rapid growth in the telecommunications market, redirection of its product activity to address higher-growth market segments, and the potential for superb positive earnings leverage in 2001," said Edward C. White.
BEA Systems, which creates e-commerce infrastructures, jumped $7.03 to $45.97 today. In the past year the company's stock has traded as high as $78.87 and as low as $4.96.
"BEA recently reported service revenue growth that significantly outpaced license revenue growth, causing a negative reaction on the Street," said Neil Herman. "We believe this reaction was misguided and view the associated weakness in the stock as an excellent buying opportunity. In BEA's case, we think accelerating service revenue growth precedes accelerating license revenue growth because the company is paid upon deployment of its product, usually after significant service revenues have been recorded."
Cendant, a provider of real estate, travel and direct-marketing services, rose $2.13 to $15. In the past year, the company's stock has traded as high as $26.93 and as low as $11.84.
"We expect further announcements from Cendant defining its Internet strategy and its relationship with Liberty Media (which recently took a stake in the company). We continue to believe that Cendant's Internet assets are worth at least $5 (billion) to $10 billion and that management will become increasingly active to obtain credit for these assets as it continues to unveil its strategy," said Jeffrey Kessler.
Gemstar International, which provides electronic program guide services for televisions, rose $4.50 to $54.38. In the past year the company's stock has traded as high as $107.43 and as low as $24.62.
Gemstar International stock "should rise sharply from the combined power of Gemstar's technology portfolio and TV Guide's vast distribution network in both television and print media, and market leadership in cable EPGs," said Michael Stanek. "Industry sources indicate that America Online, merging with Time Warner, is playing a proactive role in bartering a deal between Gemstar and General Instrument Corporation (now part of Motorola). We expect that an eventual settlement would pave the way for $15 million upside to our modeled top-line estimates."
Shares of computer maker Hewlett-Packard gained $7.06 to $123.69. In the past year, the company's shares have traded as high as $155.50 and as low as $67.
"New laser printers, PCs and Unix servers could aid revenue gains in 2000. With expenses under tight control and a more aggressive push in e-services, digital photography and color printing, there is considerable upside potential," said George Elling.
Shares of Juniper Networks, which supplies Internet backbone routers, rose $10 to $136.44. In the past year, the company's shares have traded as high as $156.46 and as low as $5.66.
"Juniper's recently introduced M160 router is likely to aid service providers to scale their networking needs, while its latest OC-192c interface (industry first) is also likely to help the company garner wins with emerging Internet data providers," said Mark Sue.
Shares of pharmaceutical company Eli Lilly rose $2.38 to $87.13. In the past year the shares have traded as high as $89.43 and as low as $54.
"Lilly has 12 separate chemical entities in Phase II or III (clinical trials), eight of which are currently in Phase III and two more destined to enter Phase III by year-end. We view positive news on trial results or FDA filings as catalysts that will continue to lift the stock. And while rhAPC has been discounted heavily by the market in its quest to gain FDA approval to treat sepsis, there is reason to believe data coming out by next June may be encouraging," said C. Anthony Butler.
Shares of chipmaker Micron Technology fell $1.50 to $88.50. In the past year the company's shares have traded as high as $94.50 and as low as $18.
"We expect the industry to release incremental data about DRAM pricing increases and continued low inventory levels," said Dan Niles.
Shares of Nortel Networks, a network equipment supplier, rose $1.88 to $69.13 in trading today. In the past year, shares of the company have traded as high as $72.09 and as low as $17.93.
"We expect Nortel to confirm multiple new orders for optical and 3G wireless systems over the next several months," said Tim Luke.
Shares of Tellabs, a telecommunications equipment maker, rose $5.31 to $68. In the past year the company's shares have traded as high as $77.25 and as low as $41.81.