Value of Conglomerates Found in Mix of Components.

TANGERINE. It's a delicious fruit, of course. But in the lexicon of the, stock market, the word has another connotation. It refers to a company whose subsidiaries or divisions are very different from one another. Such companies can be taken apart into separate pieces as readily as the sections of a tangerine.

Call them conglomerates. Call them multi-industry companies. Call them diversified companies. Whatever you call them, they are frequently tasty. investments.

When I began watching the business scene in the late 1960s and early 1970s, conglomerates were all the rage. The epitome was Harold. Geneen's ITT Corp., which boasted of 15 percent annual earnings gains.

Specialized expertise in a particular industry such as metals or broadcasting wasn't considered knowledge of a high order back then. Instead, people believed that an able manager could run any type of business.

Today, the pendulum has swung. Conglomerates are scorned or, worse, ignored. Few brokerage-house analysts follow them. Investors dislike them because they are difficult to follow and to analyze.

As a result, it's not uncommon for a multi-industry company to sell for less than the sum that its parts -- if separate -- would command in the marketplace.

There lies the opportunity. To "enhance shareholder value," all that many conglomerates need to do is to separate, themselves into pieces. If they're smart, they sell the pieces to the public over several years. They sell the energy piece when energy stocks are in demand, the technology piece when high-tech is hot, and so on.

Sears, Roebuck & Co. was a classic example. It sold 20 percent of Allstate Corp. to the public in 1993 and the rest in 1995. It spun off Dean Witter, Discover & Co. in 1993. The moves provided shareholders with major gains both in the short term and the longterm. (Dean Witter Discover has since merged into Morgan Stanley Dean Witter & Co.)

Many of my clients own shares in Canadian Pacific Ltd., which announced plans recently to split itself into five companies. Canadian Pacific shares have since climbed 13 percent, and were trading slightly above $38 a share early last week.

Oil and hotels

I expect further gains to come, as investors begin to focus more intensely. on the value in such pieces as PanCanadian Petroleum Ltd., Canada's fourth-largest oil producer. (PanCanadian is already separately traded, and some of my clients own shares in it.)

I am looking forward to the process in which investors take a close look at Canadian Pacific's hotel properties, which include the Plaza in New York and the Fairmont in San Francisco. The other three pieces will be the Canadian Pacific railroad (Canada's second largest railroad), a coal company and a shipping company.

Sooner or later, I will probably sell the railway and shipping pieces, but I'm in no hurry. I will probably hold onto the pieces for coal, oil and hotels.

"We came to the conclusion that the investor community wanted pure-play, self standing companies," said Canadian Pacific Chief Executive David O'Brien.

You could hardly put it more succinctly.

O'Brien has decided to give the people what they want. I figure a lot of other conglomerates will make the same choice.

The two biggest conglomerates in the United States are General Electric Co. and Berkshire Hathaway Inc., with market values of $458 billion and $107 billion, respectively. Both are popular stocks -- exceptions to the rule that conglomerate stocks are unpopular and neglected. GE sells for 36 times recent earnings, Berkshire for a multiple of 105.

Cheap conglomerates

It's not hard, however, to find cheap conglomerates. Three that I consider attractively priced right now are Textron Inc., Crane Co. and Carlisle Cos.

Textron operates in four business segments. The best-known products, Bell helicopters and Cessna corporate jets, are in the aircraft segment. But the more prosaic industrial segment -- which makes fluid and power systems, fasteners, and golf and turf-care products -- is the largest one. The automotive segment makes instrument panels, bumpers, fuel tanks and other auto parts. The financial segment, the smallest, is a commercial lender.

Textron stock seems cheap to me by several measures. It sells for 1.7 times book value (corporate net worth per share) and 0.6 times revenue. The debt-equity ratio is higher than I prefer, at 162 percent. And several of Textron's operations would suffer in a recession. But on the whole, I like the stock.

Crane is smaller ($1.6 billion market value compared to Textron's $7.4 billion) and a little more expensive at 15 times earnings. But I think it is also appealing.

Based in Stamford, Conn., Crane has five segments: fluid handling, aircraft braking systems, engineered industrial products, vending machines and control systems. The company hasn't suffered a quarterly loss in at least eight years. During the past five years, earnings have grown at a 10 percent annual clip, while revenue has declined slightly.

Crane earned a 21 percent return on stockholders' equity last year, which is praiseworthy, especially since it didn't jack up that figure by using a lot of debt. At 2.7 times book value and 1.1 times revenue, the stock isn't dirtcheap, but it isn't expensive either. Very few analysts follow Crane, and most of them are unenthusiastic. I think there is room for a pleasant surprise on the upside.

Another conglomerate I like is Carlisle Cos., based in Syracuse, N.Y. Carlisle makes roofing, braking systems for off-road equipment, cable used in the aerospace industry, tires for lawnmowers and golf carts, and highpayload trailers, among other things.

Like Crane, Carlisle hasn't had a down quarter in at least eight years. And like Textron, it sells for attractive price ratios -- 11 times recent earnings, 2 times book value and 0.6 times revenue.

You aren't likely to make a 1,000 percent gain in these stocks, but you're not likely to absorb catastrophic losses either, If your goal is a 100 percent gain in five years, you have a pretty good chance, I'd say.

John Dorfman is a columnist with Bloomberg News.