Large-cap bargains.

Lakefront's Nate Carter likes them big and inexpensive

Nate Carter, president and chief investment officer of Cleveland-based Lakefront Capital and an investor in large-capitalization value stocks, has the best of both worlds.

Carter manages the $2 million Victory Lakefront Fund, a large-cap value portfolio, and a member of the BLACK ENTERPRISE Black Mutual Fund Index ("Off to the Raced," Moneywise, October 1999). The stocks he buys are those of big companies--they have market capitalizations of $5 billion or more--that are inexpensive based on certain financial measures.

Two key indicators Carter looks at when picking stocks are companies trading at a discount to the market's price-to-earnings ratio of about 27 times 2000 earnings, and those whose P/E to growth rate is less than 1.5 times their long-term expected earnings growth. Also getting Carter's nod: companies with good global franchises whose management teams are focused on controlling expenses while increasing market share.

American Express (NYSE: AXP) fits Carter's investment philosophy. He thinks the New York City-based financial-services conglomerate will benefit both domestically and internationally from its strong credit card division, its consumer financial services division and its financial portal, which allows clients to trade online. Carter says the company's credit card distribution could grow 8% a year over the next five years. He notes that only about 21% of all purchases are currently paid for with credit cards.

He also likes Tricon Global Restaurants (NYSE: YUM), the Louisville, Kentucky, operator of fast-food restaurants KFC, Pizza Hut and Taco Bell. Although the stock has been beaten down due to weak sales and lack of guidance on its future earnings, Tricon has identified 4,800 locations across the country where there's a McDonald's restaurant but just one or no Tricon restaurants--and thus an expansion opportunity. The company also plans to sell more of its company-owned units to franchisers and use the proceeds to pay down its debt.

Carter says Delphi Automotive Systems (NYSE: DPH), a Troy, Michigan, supplier of components and integrated systems to the auto industry and a General Motors spin-off, has $30 billion in revenues, is the dominant player in the auto parts industry, and continues to woo new clients.

Peapack, New Jersey-based drug company Pharmacia & Upjohn (NYSE: PNU) has several positive attributes, including its merger-in-the-works with Monsanto Co., which brings the new corporation's combined market value to about $52 billion. Another plus is the fact that most of its drug patents won't begin to expire for years, Carter points out. Finally, new management at KMart (NYSE: KM) has guided the Troy, Michigan, operator of discount stores to convert 1,800 of its regular KMarts to its Big K format as well as to roll out 50 of its very large Super KMart stores this year. Also, the company has changed its merchandise mix and, to cut costs, is using fewer suppliers.

Carter's Catches

Company                                  12-Month
Exchange: Symbol            Price(*)   Price Target

American Express            $155.13        $210
NYSE: AXP
Delphi Automotive Systems    15.25          21
NYSE: DPH
KMart                        11.19          16
NYSE: KM
Pharmacia & Upjohn           50.25          65
NYSE: PNU
Tricon Global Restaurants    39.44          55
NYSE: YUM

                                               Est. 5-Yr.
Company                     P/E on Projected   Annual EPS
Exchange: Symbol             1999 Earnings       Growth

American Express                  29.6            13.5%
NYSE: AXP
Delphi Automotive Systems         12.8            10.0
NYSE: DPH
KMart                             16.0            10.8
NYSE: KM
Pharmacia & Upjohn                34.7            13.0
NYSE: PNU
Tricon Global Restaurants         10.0            14.1
NYSE: YUM

Company
Exchange: Symbol            Why Stock Will Outperform

American Express            * Global presence in charge cards and
NYSE: AXP                     online trading key to growth of this
                              diversified financial services company
Delphi Automotive Systems   * Dominant auto parts supplier possesses
NYSE: DPH                     girth to take market share from
                              smaller players
KMart                       * Discount retailer should benefit from
NYSE: KM                      changing 1,800 locations to Big K
                              format, adding 50 Super K stores,
                              and improved merchandise mix
Pharmacia & Upjohn          * Pharmaceutical firm should be helped
NYSE: PNU                     by new drugs as well as patents
                              lasting well into 2005
Tricon Global Restaurants   * Operator of KFC, Pizza Hut, and Taco
NYSE: YUM                     Bell has expansion plans into 4,800
                              underserved locations

(*) Closing price as of 12/17/99

Source: Nate Carter, Lakefront Capital Investors; Yahoo! Finance.