The big buyout.

Three of Larry Jones' value picks were sold

Even in 2000, a down year for the market by all standards, some stocks managed to make themselves look attractive to investors sniffing for new gold. This scenario best describes some of CFA Larry Jones' five value picks from last year's Private Screening. Three were taken over, one went up more than 100%, and one fell into an abyss.

Jones, president, director of research, and market strategist for The Kenwood Group Inc., in Chicago, says that his portfolio had a decent performance, up 1.2% for 2000, considering that major benchmarks such as the S&P 500 index and the Nasdaq composite index were down for the year, 9.10% and 39.18%, respectively

For this Stock Update, the charts only show the performances of Alza Corp. and Network Associates, since three of Jones' stocks--Seagate Technology, United Asset Management, and Sterling Software--wore acquired and are no longer publicly traded.

Alza (NYSE: AZA), a drug delivery firm, benefited from the success of two of its pipeline drugs, Ditropan XL, an incontinence product, and Conserta, which helps patients with Attention Deficit Hyperactivity Disorder. "So this product went from a 0% market share [around August 2000, when it received approval from the U.S. Food and Drug Administration] to a 10% or 11% market share," says Jones. Alza gained a whopping 134.84% since Jones' recommendation.

Seagate Technology (NYSE: SEG), a maker of disk drives, was acquired by one of the companies that it previously had a major investment in: Veritas Software (Nasdaq: VRTS). "At one time, Seagate held a portfolio that [had as much] as $19 billion in portfolio investments, but the market was only valuing [Seagate at] around $12 billion." In other words, the company had a portfolio that was worth more than its own market value. For each share of Seagate, shareholders received 0.4465 shares of Veritas, plus a little more than $8.50 per share in cash. However, Jones has since sold his position in Seagate.

If you bought Seagate at the price of recommendation on January 14, 2000, at $43.19, you would have watched the value of the stock jump 14.61%, to $49.50 on November 21, 2000, the last day of trading for Seagate. Not bad for a stock in this topsy-turvy environment.

United Asset Management (NYSE: UAM) was also sold in a takeover move. Old Mutual plc, a mutual insurance company based in London (and traded on the London Stock Exchange), offered UAM shareholders $25 a share. "We realized all along that the acquisition price [before the sale] was much higher than what the stock was selling for in the marketplace," says Jones. The merger was completed in November 2000. On January 14, 2000, UAM closed at $16.81. It realized an astounding 48.72% total return when it jumped to $25 at the close of October 6, 2000, the last day of trading for the stock.

Another takeover target, Sterling Software (NYSE: SSW)--a provider of enterprise software mostly to government agencies--was acquired last March by Computer Associates (NYSE: CA), the world's leading business software company The Kenwood Group received about $36 per share at the time of the sale. Jones says his company sold the position because it's not a midcap value stock, which is the core investment in his company's portfolio. Sterling's stock also gained weight as a result of its takeover. The stock jumped 16.90% from January 14 to April 7, 2000 (the last day of trading for SSW), climbing from $29.94 to $35.

Network Associates (Nasdaq: NETA) is a Santa Clara, California-based security software provider for Internet and intranet systems in corporations. As a result of a new organizational and management structure, Network Associates' shares plunged 81.14% since recommendation. "Their new structure was initially successful, but it had a negative earnings surprise in the fourth quarter [of 2000]," says Jones. Also, the company changed the formula for how it determines a sale, "causing it to reduce the amount of recorded sales in the fourth quarter."

Larry Jones'
Portfolio Performance

Total Return:
26.85%

Current Value of
$2,000 Investment:
$2,537.01

Alza (NYSE: AZA)

Total Return(*)   Current Value of $1,000 Investment

   134.84%                    $2,348.44

Network Associates (Nasdaq: NETA)

Total Return(*)   Current Value of $1,000 Investment

    -81.14%                     $188.57

(*) Total return reflects appreciation and includes
stock splits and dividends.

Source: Yahoo! Finance

Note: Table made from a line graph