These Large-Caps Could Be Strong Bet for Rebound.

EARLIER this month, I recommended 10 small and mid-sized stocks that were down sharply this year and that I think have good potential for a January rebound.

But small stocks are not everyone's cup of tea. Some people feel that big stocks are safer and more stable. For those folks, here are a few large-capitalization stocks that I expect will rebound in January after being rocked badly this year.

The January rebound is not a matter of poetic justice; it's a matter of taxes. As the yearend approaches, people will be selling their losing stocks to nail down tax losses. That will depress some stocks below their intrinsic value. Come January, they are likely to rebound.

According to Bloomberg stock-screening software as of Nov. 21, only nine big-company stocks (with market values of $2 billion and up) meet each of the following criteria:

* They are down 40 percent or more this year.

* They sell for no more than 15 times the past four quarters' earnings.

* They sell for no more than two times book value (corporate net worth per share).

* They have debt no greater than stockholders' equity.

All three of the major long-distance telephone carriers qualify -- AT&T Corp., Sprint Corp. and WorldCom Inc. They have all been hurt by rate wars in the consumer long-distance business, which have depressed profits.

Preference for WorldCum

Of the three, my favorite is WorldCom. Its chief executive, Bernard J. Ebbers, is tough and innovative, and I believe those qualities have rubbed off on the corporate culture. WorldCom sells for nine times earnings and for less than book value. That is the cheapest it has been in seven years. In fact, during the past seven years, WorldCom's average price-earnings ratio was 77 and its average price-book ratio was 2.6.

WorldCom stock as of last week had fallen to $17.06 a share from $49.19 in July. Sure, the industry has problems, but aren't investors overreacting just a little?

WorldCom has reported record earnings in each of the past four quarters, but analysts estimate 2001 earnings will be down 25 percent from 2000 (to $1.29 a share from $1.65). I am guessing that the slowdown will be temporary. I think we are still in a long-term growth trend for traffic in voice, data, Internet and wireless communication.

I also like AT&T and Sprint, but less enthusiastically. They sell for 10 and 14 times earnings, respectively. Plans to break up both AT&T and WorldCom into their component parts don't weigh heavily on my view. They may be a minor positive.

Two computer companies make the potential-rebound list -- Apple Computer Inc. and Unisys Corp. Dreman Value Management, with which I have an affiliation, bought some Apple shares this month. I also bought some in October for my personal account.

Apple has had its ups and downs, no question. Despite innovative products widely admired by computer aficionados, its sales have been disproportionately concentrated among students, educational institutions and graphics professionals.

Every once in a while, Apple announces disappointing earnings and the stock gets creamed. That happened most recently this September, when Apple's stock price plunged to $25.75 a share from $60.94. It was languishing last week at around $20.

Earnings warning

The stock plunged after the company said that December-quarter earnings will be tiny because of slower-than-expected sales of new products such as the PowerMac Cube. That surely was reason for some decline in the stock -- but in my opinion not for a $12 billion haircut, which is what the stock got.

Apple has been profitable for three fiscal years in a row. Its total debt is less than 8 percent of equity. And the stock is cheap, at less than 12 times earnings and less than revenue.

Unisys also looks cheap, selling for 12 times earnings, 1.9 times book value and 0.6 times revenue. Its balance sheet isn't as strong as Apple's, but it's not bad. Debt was recently 47 percent of equity.

Two retailers meet my rebound criteria. Circuit City Stores-Circuit City Group sells appliances, computers, consumer electronics and entertainment software. The company announced plans in July to stop selling appliances and to use the space for selling software and other computer products. Kmart Corp. is the nation's second-largest discount retailer.

Circuit City's earnings declined last quarter, and it may be in for more rough quarters because of industrywide price cutting and possibly a slowing retail climate. But with debt only 11 percent of equity, it seems well equipped to weather the storm. And I like its valuation ratios -- eight times recent earnings, 1.2 times book value and 0.2 times sales.

Kmart has been one of the most disappointing stocks in the country for the past decade, dropping from $24.50 a share at the end of 1992 to $6.31 on Nov. 20. I think this unpopular stock may do pretty well over the next year or two, for two reasons. Expectations for it are extremely low -- which is why it sells for about half of book value and less than 0.1 times sales. And I speculate that it may become a takeover target.

The final two stocks are Royal Caribbean Cruises Ltd. and Weyerhaeuser Co.

Royal Caribbean, based in Miami, is the world's second-largest cruise ship operator. It has been hurt by overcapacity in the cruise-ship industry and by a recent trend for people to book shorter cruises. However, I believe demographics (aging baby boomers) still favor the industry. (My clients own Royal Caribbean's larger rival, Carnival Corp.)

Weyerhaeuser, a forest products company, based in Federal Way, Wash., is trying to acquire a smaller competitor, Williamette Industries Inc., for $7 billion in cash and debt. Williamette rejected the offer Nov. 20.

Weyerhaeuser has reported increased earnings in six of the past 10 years and lower earnings in four -- about what you would expect from a cyclical stock. It has remained profitable, however, every year since 1991.

John Dorfman is president of Dorfman Investments in Boston and a columnist for Bloomberg News.