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Jack Sirard: Stock analyst touts a California strategy
By Jack Sirard -- Bee Columnist
Published 2:15 am PDT Tuesday, October 4, 2005
Story appeared in Business section, Page D1
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http://www.sacbee.com/content/business/story/13665537p-14508309c.html

When it comes to picking stocks, Bud Leedom says there's really no reason to look beyond the borders of California.
The 40-year-old former analyst for Wells Fargo Securities points out that the Golden State has hundreds of publicly traded companies that are involved in everything from biotechnology to supermarkets.

"There is always something going on in California, across a diverse group of industries. Anything that's really important in growth industries starts here," he says. "The state represents the key to the growth of the national economy."

Leedom, who's chairman of the San Diego Growth Stock Conference, believes that institutional traders can dramatically affect the price movement of individual stocks.

In fact, his primary analysis of the market focuses on the buying and selling of institutional investors, which he uses to chart the supply/demand ratios of hundreds of California stocks.

Leedom, who grew up in California and studied astronomy, mathematics and statistics at San Diego State, publishes the California Stock Report, a relatively new investment newsletter that rates and ranks the state's top companies.

Mike Doran, a Shingle Springs money manager, says Leedom could be onto something.

"The market is being led by energy and commodity stocks," he says, "and everyone is trying to figure out a way to play the post-Katrina market."

While consumer spending was leading the economy for some time, capital spending by corporate America is expected to increase and that will benefit the technology sector, Doran says. If that happens, a California investment strategy would be advantageous due to the abundance of technology companies in the state.

Leedom focuses much of his coverage on the large-and mid-cap stocks but also will study small-cap stocks of note.

He says it's a good time to survey the wide-ranging field of California stocks "because several are poised to break out of their trading patterns to the upside."

What stocks does he like?

Two of the three currently at the top of his list are Amgen Inc. and Northrop Grumman Corp., two stocks as different as night and day.

"With Amgen, I like the fact that the company has a lot of products coming down the pipeline," he says.

The stock (ticker symbol AMGN on the Nasdaq) closed Monday at $79.62; it has traded between $52 and $86.92 a share over the past 52 weeks.

"Its earnings are up and its valuation in the market makes no sense to me; it should be higher," Leedom says. "Amgen is one of the premier names in a sector that has been decimated over the last several years."

Leedom follows the biotech sector closely and notes that only about one in 15 companies makes any money. Amgen, based in Thousand Oaks, is quite profitable, he adds.

Also getting featured billing on his list of California's Golden Bulls is Northrop Grumman (ticker symbol NOC on the New York Stock Exchange).

The Los Angeles defense and aerospace contractor expects to land a steady flow of government contracts, which means it's well-suited to increase its earnings over the next several years, he says.

Leedom notes that institutional investors have been significant buyers of Northrop shares of late. The stock closed Monday at $53.88.

One of his very favorite stocks is Qualcomm Inc., the San Diego-based communications equipment company that's on the verge of delivering its third generation of telecom products. He believes that its stock bears watching over the next 15 months.

"This is a stock that was a huge player in the market until the bubble burst, but now it's pointing toward having a great 2006," he says.

"The stock (ticker QCOM on the Nasdaq) was just lumbering along in the $30 range for a long time, but now it's moved up to $45.05 a share. I don't think it's too late for investors, because Qualcomm could run to $60 to $70 a share."

Another of his personal favorites is Netflix Inc. (ticker NFLX on the Nasdaq) which he says continues "to benefit from the troubles hitting such rivals as Blockbuster and Hollywood Video. Netflix, based in Los Gatos, closed Monday at $26.64 a share.

"Very soon Netflix will be able to stream its videos to consumers over the Internet," he says. "People have been waiting for that, and it could come by the end of the year."

Leedom admits he currently has a bias toward large-cap stocks because they've come down so much in value since the stock market downturn in 2000.

"I recognize that a lot of people like stocks that are priced at $5 to $6 a share, but those stocks may only be worth that much - or less," he says.

"With so many large-cap stocks selling at bargain prices, this is not the time to bank on small-cap stocks."



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CALIFORNIA'S GOLDEN BULLS
Bud Leedom says investors can find some top-quality California stocks selling at reasonable values. The top five on his list, with Monday share prices:
1. Amgen Inc.: Trades as AMGN on the Nasdaq, $79.62

2. Netflix Inc.: NFLX on the Nasdaq, $26.64

3. Northrop Grumman Corp.: NOC on the New York Stock Exchange, $53.88

4. Qualcomm Inc.: QCOM on the Nasdaq, $45.05

5. Multi-Fineline Electronix Inc.: MFLX on the Nasdaq, $29.69

Source: California Stock Report