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Arkansas picks.

Alltel Corp., Wal-Mart Stores Inc., Acxiom Corp. Top the List of Quarterly Favorites

THE TIMING OF THE ARKANSAS BUSINESS quarterly round table of Little Rock brokers, analysts and money managers could not have been any better for those investors looking for "Clinton plays."

Four investment professionals offered their observations on Arkansas-based public companies and the impact of a Clinton presidency just days after the Arkansas governor was elected.

Those at the quarterly round table Nov. 6 were:

* Rick Holderfield, a senior investment broker at A.G. Edwards & Sons Inc.

* Dudley Shollmier, a broker at Hill Crawford & Lanford Inc.

* Graham Smith, an investment broker with Morgan Keegan.

* Jamai Weber, a senior vice president at Worthen Investments Inc., a subsidiary of Worthen Banking Corp.

The moderator was Bill Smith, president of Smith Capital Management Inc.

The panelists agreed that Wal-Mart Stores Inc., based in Bentonville, and Little Rock-based Alltel Corp. were stocks to watch as President-elect Clinton brings more attention to the state.

Also mentioned in high regard were Acxiom Corp. of Conway, Tyson Foods Inc. of Springdale and Arkansas' two largest banks -- Worthen Banking Corp. and First Commercial Corp., both of Little Rock.

The brokers and analysts also picked CIFRA as a stock to watch. CIFRA is a Mexican-based company involved in a joint venture with Wal-Mart.

The panelists speak:

We hope to come up with some good stock selections for a Clinton presidency. And, we hope to come up with some companies that investors might want to take a look at because of their growth and potential. If you were selecting from the Arkansas-based companies for the next year to 18 months, what would be your No. 1 pick and why?

Weber: In the last two weeks, so many of the Arkansas stocks have gone up that it makes it a much harder chore. But I would say my No. 1 pick would be between Alltel and Wal-Mart. Wal-Mart has a lot of growth ahead in the next year. Alltel has gone up a good 20 percent. Wal-Mart is due for a split. That can help the stock. There will be a lot of growth in Wal-Mart because it is the most well-recognized stock in Arkansas.

Mexico has some real opportunities to open up. And Wal-Mart has the joint operation with CIFRA, which could add some good margins to Wal-Mart. I think there is a good 20-25 percent return ahead of us in the next year.

I have been a big Alltel pusher for a long time. Revenues at Systematics |Information Services Inc., an Alltel subsidiary~ were up 71 percent and cellular revenues were up 110 percent. There is still a lot of hidden surprise in Alltel ... They're now the fifth-largest non-Bell telephone company. Revenues on Systematics should kick in by the end of 1993. The '93 earnings projection is 1.85 versus 2.50 this year. Systematics is a great secret to that stock.

Shollmier: Alltel is my No. 1 choice. When we were last talking, it was $38 |per share~ and it's now 46. That's up 20 percent basically over the last six months. Wal-Mart, which would be my No. 2 choice, is up the same amount over the last six months.

When is the Systematics earnings going to impact the company? Basically, today. Systematics is 22 percent of the operating income of Alltel. The telephone segment of Alltel is up 17 percent and most telephone companies have been up 4, 5, 6 percent. So it's not only the new, sexy Systematics. But telephone itself is improving a substantial amount at Alltel.

And Systematics just signed Nation's Bank, which is the fourth-largest bank in America. Unlike many of the large banks, Nation's Bank is a retail bank. It has thousands of branches, millions of clients, and that means a large data processing operation. That means a great deal of money for Systematics.

Also, I think Alltel is going to split. I would be surprised if, at the next annual meeting, it did not split. This will be the first time |Alltel Chairman and President~ Joe Ford will get to say, 'Let's split the stock.' Before, the splits were all 3-for-2. At the next annual meeting I think you'll see a 2-for-1. Joe Ford says he likes simple math.

Holderfield: |Alltel is~ buying a lot of rural areas, which they'll get great tax breaks on. They're going to double or triple their cellular phone business between now and 1995. Alltel looks great.

Let's talk about some other companies. Who else do you like?

Graham Smith: My No. 1 Arkansas stock would have to be Acxiom. A major focus of larger companies in the '90s is going to be their ability to hold down their costs. Acxiom is a company that can help these Fortune 1,000 companies do this. In the '80s, Acxiom used its technology and its software to develop marketing strategies for marketing companies.

About two years ago, Acxiom's management stepped back, examined what they had done in the past and realized two things: The company's marketing expertise was far beyond anyone else's and it had a lot of data processing technology that it could bring forward to these companies it was working with. So Acxiom developed a new strategy. And the new strategy is to go after large companies, Fortune 1,000 companies.

|Acxiom recently has contracted with Allstate Insurance Co., part of the Sears Network, and Trans Union Corp., a Chicago-based consumer credit information company~. The Allstate contract in 1993 will mean $15 million to the revenue line and can mean up to $50 million annually to the company over the long term. The Trans Union contract is $20 million annually. Combined, that's a 35 percent raise in revenues just off of those two contracts. These are long-term contracts. Allstate is five years. Trans Union is 10 years.

Generally, Acxiom can be more efficient and lower the data processing costs of the company. But it offers a value-added service -- marketing expertise. This is what separates Acxiom. The earnings I've seen are estimated at $1.20 for this year and $1.60 for next year. That's about a 30 percent growth rate. The stock is selling at about 27 |dollars~ per share.

Shollmier: Acxiom is looking more and more like a Systematics. Both kind of do the same thing. They don't just improve data processing. They enable their clients to do some things that they couldn't do before they arrived -- both Acxiom and Systematics.

Graham Smith: A lot of people around the country are taking notice of Acxiom. There are not a lot of firms that follow this stock. But, as interest in the community picks up, Wall Street is going to discover this stock.

Which of the Arkansas companies would truly benefit from our new president?

Shollmier: If you look at Wal-Mart, not much presence in Arkansas. Dillard's, not much presence in Arkansas. Even Alltel, really not much presence in Arkansas. I think that's why the banks have enjoyed such success recently. Improvement in the Arkansas economy will benefit the banks. It will benefit the other Arkansas corporations, too. But so little of their business comes from Arkansas. So it is unique if you're an institutional investor looking for an investment play on Arkansas.

Weber: We realize New York and the institutions have to like the stock. What really moves a stock is when you get institutional play. And Arkansas is in the minds of people now, more than it was. It's not going to be overnight glory land. But, they're going to recognize Acxiom. Oh, it's in Conway. That's in Arkansas. Clinton may send some business its way. It's the perception that may get some play on stocks.

Graham Smith: In the technology and computer business, all that you are doing is reinventing the wheel. You're making something that will benefit companies better. Acxiom has done this. It's bringing service to the financial services and marketing companies.

Shollmier: I'd say Systematics is a pioneer in that area, along with our good friend Ross Perot.

Weber: Really important in all this is international business. It's a lot easier to go to Japan and Europe now and say you're from Arkansas than it was six months ago. There are great opportunities in Europe and the doors have really opened up now.

Any other No. 1 picks?

Holderfield: I'm in the chicken business. I like the chicken business. I like Tyson's on the conservative side and I like Hudson Food on the aggressive side. We think Hudson Food is turning around and will earn $1.35 next year and trade at 10 times earnings. It's a stock that should be looked at.

Feed costs are down. It's been a squeeze in the chicken industry the last three years and we think that downtrend is over. We're looking for the cyclical upturn to come and benefit the chicken stocks. |Hudson~ should reach about $900 million sales. Tyson will be over $4 billion.

Is Tyson essentially to the commodity side?

Holderfield: No, Tyson is really a food service company. They're not just a chicken company anymore ... Of course, Tyson is a whole lot better known than Hudson, a more conservative play. But |Tyson~ continues to pay down their debt off the Holly Farms acquisition and they're expecting $300 million revenues off the fisheries they've acquired. They're just not a chicken concern. They're into processed food, which carries a higher profit margin than just the chilled chicken.

Weber: Tyson has been valued as a poultry producer and not as a food company. If you value Tyson as a food company and compare it to the Sara Lees of the world, it's undervalued. My target for Tyson within six months is 26, 27 and it's trading at 21 today. Another reason is it's been flat for two years. Whenever people get frustrated with a stock is about when it gets moving.

There is an institutional market out there that will buy stocks, and there is a retail market of individuals. If the institutions are searching for Arkansas or 'Clinton Country' buys, they're going to seek Tyson, Wal-Mart, J.B. Hunt Transport Services Inc., Dillard Department Stores Inc., Arkansas Freightways Inc. We would be interested in some up-and-comers, though. Let's look at the Wal-Marts of tomorrow.

Holderfield: ProDentech. Professional Dental Technologies has been listed for five years. They went public in March 1987. They make dental equipment. Basically, the dental profession is going through a big change now. It's into preventive care and periodontal gum disease. This company in Batesville addresses those problems. They now employ over 300 people and should get over $20 million in sales this year. They did slightly under $15 million last year. At time they first went public they had one product -- an electric rotary toothbrush. They now have a voice-activated computer that helps the dentist chart the patient and identify the problems. They have an oral camera that can actually take pictures of the patient's mouth and show them what the problems are. It's a great selling tool for the dentist.

They've got other products, too. But it's basically sold direct to the dentist. They've got the American Dental Association stamp of approval on their products. It's a great looking little company.

They've earned nine cents over the first three quarters this year. They've spent quite a bit of money developing these products, so I think the earnings ahead over the next couple of years are going to be real good. They got listed on the American Stock Exchange. It's flat and it's a great time to buy the stock. There's a float of a little more than four million shares out there.

Where does management want to take the company?

Holderfield: They have negotiated with |the Colgate-Palmolive Co.~ for 18 months before negotiations were broken off. Colgate was looking to buy a third of the company. They now are going to arbitration over that. They feel like they've been slighted by Colgate. They feel Colgate told them not to develop other parts of their business while they were going through this process.

There's quite a bit of money on that line. Nobody really knows how that will be resolved. But arbitration should come about in '93.

Colgate wanted to market the products worldwide ... Right now, they are solely concentrating on working with dentists. They're exporting their brushes to over 10 countries now. They're well-poised for some progress. Their technology base is one of the interesting things about it.

Any other table pounders here?

Weber: I am extremely bullish on CIFRA. CIFRA is a multibillion dollar company out of Mexico City. And it's really three divisions. CIFRA is a Sam's Wholesale-type store, a grocery supermarket and an upscale retailer similar to Dillard's. The company has virtually no debt. The stock today was at 1.86. It's been up to 2.02. There are a lot of Arkansas retail investors that I think are wonderful that are buying this stock.

People that have never bought a stock before are putting $1,000 to $2,000 to $3,000 toward it. I think that is great that they are willing to take the chance. Growth rate is probably going to be 40 percent. It's a very viable company. Forbes has covered it. Fortune had an article.

You've opened the whole subject of the Mexican connection. How do we stand on negotiations with the North American Free Trade Agreement? Could a change in approach imperil those relationships or are we OK?

Holderfield: President-elect Clinton has already stated he is for the NAFTA in form. All he wants to do is have some job displacement training along those lines. It looks like a done deal. The thing I like about CIFRA is even without this they're a great-looking company. They can do fine without this -- with the Wal-Mart connection and the great flow. They turn their inventory 14-16 times a year down there. It's truly phenomenal. Part of its business is the import-export business. I think you're going to see Wal-Mart shipping a lot of American-made products down there and I think you'll see CIFRA shipping a lot of Mexican-made products up here.

What's the ownership of Wal-Mart and CIFRA, is it 50-50?

Holderfield: From here on out it is. They expect to have 32 stores built by the end of '93 on a 50-50 deal.

Weber: Is it true that Tyson is looking to distributing their chicken down there to the CIFRA stores?

Holderfield: Tyson came in and brought a processing plant right behind the Wal-Mart deal. Now, per-pound consumption down in Mexico is only 17 pounds per person compared to over 70 pounds in the United States. It's very, very low.

You've got 83-85 million people down there. CIFRA has got 35-40 percent of the market share in the Mexico City area, which has about 20 million people. So they've got practically all the country to expand. Wal-Mart, with their 50 percent joint venture on all new stores, also got half of CIFRA's restaurant chain, which is the biggest restaurant chain in Mexico.

So, you're saying a good combination would be Wal-Mart and CIFRA, CIFRA being the smaller growth vehicle, more dynamic?

Holderfield: Absolutely. CIFRA can do what Wal-Mart did 15 years ago.

Weber: CIFRA should be bought for 10 years. It needs to be bought and forgotten. It's not one that I would trade. If it goes from 1.80 to 3.20, I wouldn't sell it. For me, it's one buy and hold.

Shollmier: My son at one time worked for Sam's in the El Paso store. And I found out from him that the most profitable, biggest growing Sam's and Wal-Mart stores are the ones on the Mexican border. What we don't understand here in the United States is that discount stores are in abundance here. They're not in Mexico. And what makes us think Mexicans would not want to buy things just like we do. And CIFRA is starting that down there. The stories I heard about CIFRA was that Mexicans were standing out in front of the stores parking people's cars because they could not find parking spots.

Another Arkansas company with Mexican involvement is J.B. Hunt. How will it do?

Holderfield: J.B. Hunt has moved into the intermodal line of transportation. It's a lot easier to put a trailer on a flatbed railroad car in Chicago and ship it down to Houston. Then, a guy will pick it up and deliver it. They've done five of those railroad deals in the last year ... And, once NAFTA goes through, J.B. Hunt will be able to ship directly down to Mexico. The biggest maritime service is the same way. Most of Mexico's ports are shallow water and a lot of the ships will not be able to come in there. So this particular company is going to have a good lock in bringing business. They'll be picking up trailers off of ships and delivering them down there.

What are other good Bill Clinton stocks?

Graham Smith: Arkansas Freightways. Not only is Arkansas going to benefit from a Clinton administration, but Tennessee will because of Al Gore. And Arkansas Freightways has a strong presence in Arkansas and Tennessee and those two states on a percentage basis makes up a large part of Arkansas Freightways revenues. So you've got an improving economy on a national level and improving economies in two states that are major parts of their business.

Let's talk about the banks. With Union being bought by Worthen, we've got two major banks -- Worthen Banking Corp. and First Commercial Corp. Bill Bowen, the ex-chairman of one of them, is very close to Clinton and rumored to be in line for his chief of staff. The other one is headed by Curt Bradbury, who is close to Clinton, and predominantly owned by the Stephenses. So, what is the outlook for those two banks under a Clinton presidency?

Shollmier: Those are two pure Clinton-Arkansas plays because all their revenue comes from Arkansas.

Weber: I agree with USA Today, which says there are not true plays on Clinton. But, banks are a great play and I would go with the strongest banks in Arkansas. Three years from now, there will be great returns.

Shollmier: When you analyze the financial stability of a bank, you have to look at two things: One is their loan portfolio and the other is their investment portfolio. I happen to know their investment portfolio at both those banks are as conservative as they can be. And I know their loan portfolios. So the safety of the banks is great.

Holderfield: I like Simmons |First National Corp.~. It's not a pure play like Worthen or First Commercial, but I think Simmons is well-poised for some good growth. Simmons is very good with cost control.
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Title Annotation:Quarterly Investment Round Table; Arkansas-based public companies; good stock selections
Publication:Arkansas Business
Article Type:Panel Discussion
Date:Nov 16, 1992
Previous Article:Neither rain, nor snow, nor heat....
Next Article:Clinton's coattails: Arkansas media may follow Bill Clinton to Washington.

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