US - More hot tips from Barrons

America's most "illustrious stock-pickers", including hedge fund manager Felix Zulauf and value investor Scott Black, have once again revealed their favourite stocks to Barron's, says Lauren Rublin. Their most interesting picks are summarised below.

Felix Zulauf, founding partner and president, Zulauf Asset Management:

The energy sector represents a "low-risk play", says Zulauf. Oil stocks trade at "a considerable discount" to the market, and oil prices are widely expected to fall, even though voracious demand from China, dwindling reserves, and a decrease in exploration collectively suggest that they won't: "sometime this decade, oil will be $60 or higher per barrel". This bodes well for US oil and gas explorers Anadarko Petroleum (APC), Devon Energy (DVN) and Canadian Natural Resources (CNQ), which trade at just seven to ten times earnings; "these are all attractive for the next few years". Consider also Norway's Statoil (STL), which boasts one of the world's largest offshore drilling operations. This year's earnings per share estimate is based on crude sliding to $25. If prices merely remain stable around $30, the figure would rise by 40%. Statoil is currently on a p/e of 12 and yields almost 4%. Its Spanish counterpart Repsol (REP), a low-cost producer active in 25 countries, is another "cheap and attractive stock" that could deliver a significant upside earnings surprise. Current oil prices imply 2004 earnings of e3 a share - double the consensus estimate - and a p/e of just five. Another good bet in view of the nascent natural resources bull market is Germany's K+S (SDF), a major producer of potash and magnesium-based fertilisers. A new potash mine and rising demand from China should boost earnings by at least 20% over the next two years, yet this well-run, debt-free company is on a 2004 p/e of 15.

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Scott Black, founder and president, Delphi Management:One of Delphi's current favourites is Decorator Industries (DII), which supplies furnishings for motorised and prefabricated homes. The rebound in the latter market, along with a forward p/e of just 11, should propel the stock, now at $7, "back to $10". Meanwhile, a virtually debt-free balance sheet, "which I like in small companies", minimises risk. Another small-cap bargain is Whiting Petroleum (WLL), an oil and gas explorer that boasts "excellent finding and development costs" and looks set to grow production by an annual 10% over the next three years. It trades at just below break-up value. Clothing retailer Liz Claiborne, boasting a return on equity of 18%, looks a good bet at 13 times earnings, while disk-drive maker Western Digital (WDR) is "an earnings-power story" with a "bullet-proof balance sheet".

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