NEW YORK – Up 38% in the last three months of 2001, the Russell 2000 Growth Index has sagged 12% so far this year. But William A. Muggia, co-manager of the Touchstone Emerging Growth Fund ($180 million assets), remains bullish on small and mid-cap growth companies, which he says are cheaper than those with large market values.

Quintiles Transnational (nasdaq: QTRN – news – people ), a clinical research and consulting services company for the drug, biotechnology and medical device industries, is one of Muggia’s picks. He thinks the company has several items working in its favor, notably new management, recent cost-cutting measures, a likely increase in genomics-related research and the fact that several high-volume prescription drugs sold by rival firms are coming off patent.

Full story at Forbes.com

NEW YORK – Consolidation was kind to shareholders of American Water Works. Last September, the company announced an offer from Germany’s RWE to purchase outstanding American Water shares at $46 each, a 35% premium to their closing price just prior to the offer.

Are more such acquisitions in store for the U.S. water business? Yes, according to Hans Peter Portner, manager of the Pictet Global Water Fund. The fund invests in companies with at least 20% of revenue derived from water activities: production, services and related technologies.

Portner sees two forms of consolidation on the horizon. The first is a trend toward privatization of America’s 55,000 community water systems. The most likely model, he contends, will be “public-private” partnerships between municipalities and leading water companies such as Suez (nyse: SZE – news – people ) and Vivendi Environnement (nyse: VE – news – people ).

This model has taken hold in Europe, and Portner sees a fit for the United States. He argues that municipalities will need private water companies’ financial muscle to upgrade community water infrastructure. His assertion finds support in estimates by the American Water Works Association, which foresees a need for $325 billion in capital spending on water distribution over the next 20 years.

Second, Portner thinks water giants will also snap up midsized companies that provide water-related technologies such as membrane filtration, ultraviolet-light disinfection systems, and consulting and engineering services.

So how to spot the likely targets? One means is the enterprise multiple, or the ratio of a company’s enterprise value divided by its earnings before interest, taxes, depreciation and amortization. Enterprise value–the sum of a company’s market capitalization and total debt, minus cash and marketable securities–makes a good proxy for the minimum price an acquirer must pay.

Full story at Forbes.com

Relative value managers, such as Linell McCurry of Walnut Asset Management, keep their value bias, but they pick stocks that would make a Ben Graham purist blush.
Conjure up a typical value stock, and Biogen doesn’t exactly leap to mind. Shares of the biotechnology concern sell for 8 times trailing revenues and 29 times trailing earnings. Analysts reporting to Thomson Financial/IBES expect Biogen’s profits to increase 18% (annualized) over the next three to five years. This doesn’t look like a stock shunned by Wall Street.

But consider Biogen (nasdaq: BGEN – news – people ) relative to its peers. The biotechnology stocks with market capitalizations exceeding $1 billion in the Market Guide database sell for an average of 74 times latest-12-month earnings. Limit the universe to biotech stocks bigger than $5 billion in capitalization, and the average multiple is still a rich 67. Alongside competitors, Biogen looks cheap.

Finding such “bargains” among high-multiple stocks is the domain of the relative value investor. “There are whole areas of the market that people will miss if they’re looking for just low price-to-book multiples and low P/Es,” says Linell McCurry, portfolio manager with Walnut Asset Management, a Philadelphia firm managing $700 million.

Full story (reg. required) at Forbes.com

NEW YORK – Debt isn’t evil. Prudent companies issue bonds to help pay for new plants and equipment, and invest in new products. But excessive debt can put enormous pressure on cash flow–particularly during an economic slowdown. In the current business environment, a good case can be made for investing in companies that aren’t excessively burdened with debt.

Example: BJ Services (nyse: BJS – news – people ), an oil-field services company. Over the past four quarters, the Houston-based firm has reduced its long-term debt from $142 million to $79 million. BJ Services’ long-term debt stands at just 5.4% of its total capitalization, versus a 28% average for an S&P index of industry peers.

With debt at such a manageable level, BJ Services should be able to ride out the current weakness in energy prices, particularly natural gas. Nevertheless, the decline in fuel prices has helped drive down BJ Services’ stock, which is off 33% from its 52-week high.

Shares of BJ Services sell for 14 times latest 12-month earnings, and 20 times estimated profits for the coming 12 months. The 12-month forward price-to-earnings ratio for the S&P 500: 31.

Full story at Forbes.com

NEW YORK – Recent events may have taken a little of the luster off emerging-markets plays. In a December 2001 report, the International Monetary Fund identified weak commodity prices (namely oil), tourism declines and other problems threatening the outlook for developing economies. For 2002, the IMF predicts private direct investment in emerging markets will drop 12% versus 2001.

The picture, however, isn’t all gloomy. A notable bright spot is China, whose economy the IMF expects to expand 7% in 2002. India and Pakistan, if they can avoid a war, also show promising growth prospects.

Another encouraging sign: Argentina’s economic problems seem contained within its borders for the moment. “This is a very different world from 1997,” according to Peter Hooper, chief economist at Deutsche Banc Alex. Brown. “I think people were better prepared this time around,” says Hooper. Along with a new U.S. attitude of engagement, Hooper thinks the global effort by central banks to ease interest rates will help emerging economies.

Robert N. Phillips Jr., chief investment officer at Walnut Asset Management ($700 million in assets), looks for long-term secular trends with what he calls a “capital-spending tailwind.” One such theme: the development of infrastructure in emerging economies.

“Lesser-developed countries are looking to get into the game,” he says, “and to do that, they’re going to have to develop their roads, highways, bridges and communications systems.”

Full story at Forbes.com

Over the past six months insiders at chicken giant Tyson Foods have purchased 37,000 shares of their company, versus insider sales of 3,500 shares. John McMillin, Prudential Securities equity analyst, thinks the net buying reflects positively on Tyson’s plans to acquire beef processor IBP. “Insiders clearly think the bet on IBP is a good one,” he opines.

Wall Street hasn’t shared in that optimism. At a recent $11 Tyson’s stock is not much above book value and is well off a five–year peak of $26.

Full story (reg. required) at Forbes.com

NEW YORK – For those looking to invest overseas, the Forbes Platinum 400 may be a good place to start. While the list sets tough requirements for qualifying companies, there are none regarding geography. The list is dotted with foreign firms that have a significant presence in the U.S. market and whose shares are either listed in the U.S. or trade here as American Depositary Receipts (ADRs).

Example: Holland’s Royal Ahold (nyse: AHO – news – people ), which runs supermarkets and food service operations in 27 countries. The $26 billion (market value) company made the list thanks in part to its five-year (annualized) sales growth of 30%. Platinum rivals Kroger (nyse: KR – news – people ) and Safeway (nyse: SWY – news – people ) managed just 13% and 15%, respectively.

Full story at Forbes.com

Investing in foreign stocks comes with certain hazards, including currency fluctuations and uncertainties about non-U.S. accounting (see previous story). Sometimes those risks are worth taking.

Erik Granade, lead manager of the $102 million (assets) Sentinel World Fund, looks for foreign blue chips trading cheaper than U.S. competitors. He’s interested in consistently profitable companies with market capitalizations greater than $1 billion, at least five years of audited financials and lower multiples than their U.S.–based competitors.

Granade cites HSBC Holdings, the $674 billion (assets) financial conglomerate with a base in London and offices all over the globe. Founded in 1865 by an enterprising Scot living in Hong Kong, the former Hongkong & Shanghai Banking Corp. has expanded its footprint with a series of acquisitions, notably Republic New York in 1999 and Crédit Commercial de France in April 2000.

Full story at Forbes.com

NEW YORK – One of the seemingly undervalued stocks in this year’s Forbes Platinum 400 list is Golden West Financial. This Oakland, Calif.-based holding company owns both Atlas companies, which manage mutual funds, and World Savings, a savings and loan concern with $58 billion in assets. Golden West has been a Platinum List member for the past two years.

Full story at Forbes.com