Slimmed-Down Market Holds Some Attractive Stocks.

A friend of mine once contracted encephalitis, sometimes known as brain fever. The disease gave him a devil of a time. But when his ordeal was over he had lost 20 pounds and was at his ideal weight.

That was a heck of a way to go on a diet, and I don't wish it on anyone. The same is true of the stock market. Seeing the Standard & Poor's 500 Index lose 16 percent of its value since January hasn't been fun. But the slimmed-down market does contain more attractive stocks than it did before.

Here are five stocks that have declined 14 percent or more since Jan. 31 and look like buys to me: Bel Fuse Inc., Sharper Image Corp., Carlisle Holdings Ltd., Jakks Pacific Inc. and Neiman Marcus Group Inc.

Bel Fuse, based in Jersey City, N.J., makes electrical fuses for cars, communications devices and other purposes. The company reported earnings of $2.94 a share in 2000, up from $1.98 the year before.

The only securities firm that follows Bel Fuse, so far as I know, is Emerald Research in Lancaster, Pa. Emerald has had a "buy" recommendation on the stock since October 1998. For this year, Emerald looks for Bel Fuse to earn $2.82 a share, which would be a 4 percent decline.

The decline doesn't discourage me much. It seems to me that Bel Fuse has a nice specialized niche. The company has no debt and its stock, down 46 percent since January, is selling at only 7 times earnings.

Sharper Image puts out a catalog for yuppies featuring things like leather-and-pewter luggage, watches from Paris or the latest in miniature consumer electronics. Laugh if you think luxury impulse purchases are funny. But over the past five years, the San Francisco-based company has shown 9 percent annual sales growth and 20 percent annual earnings growth.

If we have a recession, people may be less prone to buy rich kids' playthings. But that's a risk I'm willing to take considering that Sharper Image stock, after tumbling 39 percent since January, is selling for only 7 times earnings and 1.4 times book value (corporate net worth per share). The company's debt as of October was less than 3 percent of stockholders' equity.

South of the border

Carlisle Holdings is a small conglomerate based in Belize City, Belize. The stock trades directly on the Nasdaq national market in the United States. The company provides building maintenance, staffing services and financial services, mainly in the United States and Britain. It also has investments in vegetable oil operations and in Belize Telecommunications Ltd.

Many investors are afraid of this stock because of its low trading volume. That's a legitimate concern, but if you don't chase the stock, I think you can snatch a bargain around its current price of $3.88 a share, down 38 percent since January and down from $8.13 a year ago. The price-earnings ratio is a measly 4, and the price-book ratio is a stingy 0.8.

Jakks Pacific is the fifth-largest U.S. toy company. Its brands include Child Guidance, Road Champs and Remco. Toys are an unglamorous business. But Jakks, which went public in 1996, has increased its earnings to $1.45 a share in 2000 from 23 cents a share in 1996. The toy business doesn't collapse during economic slowdowns -- which should prove a plus in 2001. Jakks Pacific shares have slid 25 percent since January, to $8.94 a share, or five times earnings.

Luxury bargain

Neiman Marcus is a Chestnut Hill, Mass.-based luxury department store chain. Like Sharper Image, it suffers when people think the U.S. economy may be heading into a recession. The thinking is that people will defer expensive purchases, and trade down to less-expensive stores.

The last time Neiman Marcus stock got clobbered was in 1998, when the Asian economic crisis was in full flower. The stock fell below $18 a share in October 1998. I recommended it in this column that same month at $20. It rose to $41 four weeks ago, but now has fallen back to $33.50, a price at which I once more consider it a decent buy.

Neiman Marcus stock is down 14 percent since January. These days it fetches only 11 times recent earnings, 0.5 times revenue and 1.8 times book value. The company's debt is 27 percent of stockholders' equity.

Yesterday, I purchased four of these five stocks for some of my clients -- generally those with above-average risk tolerance. As of this writing, I haven't purchased Carlisle Holdings. That is partly because of its thin trading volume and partly because I don't like its industry mix as well as some of the others.

In making these purchases, I wasn't betting that the market's March madness is over. I don't know that.

It is difficult to know when a stock is timely, but it is certainly possible to tell when a stock is cheap. These stocks look cheap to me and have good balance sheets. We may be in a recession and we may not. If we are, these stocks will probably decline further, but I think they will be good bets over a three- to-five-year period. If we are not in a recession, then they will probably produce pleasant gains within a year.

John Dorfman is a columnist for Bloomberg News.