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If someone had said at the start of the year that a craft store, a fax-machine vendor and a laundry-service provider would see their shares skyrocket, you'd have laughed. All the way to the bank, that is.





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may not be household names, and

JoAnn Stores


isn't the kind of company you'd typically associate with strong growth, but all three stocks posted dramatic gains in 2002 while the

S&P 500

fell almost 21%.

Somewhat less obscure but no less impressive are


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Providian Financial


, both of which defied analysts' expectations by climbing more than 50% this year.

How did these five stocks manage to beat the odds in 2002? Some benefited from a shift in trends. But all found ways to turn their business models around.

Crafting a Recovery

Back in January of 2001, fabric and craft retailer JoAnn Stores was trading at an 11 1/2-year low, having been repeatedly beaten down during the Internet craze. But as the mood on Wall Street began to turn, shares of JoAnn did too, and after a modest 6% rise last year, the stock jumped a whopping 238% in 2002.

"Over the last few years anything in the crafts and fabrics was considered a stodgy business," said Laura Richardson, an analyst at Adams, Harkness & Hill. "JoAnn has benefited from an improved image for its industry and also a lot of smart moves that it has made to improve its operations." (Adams, Harkness & Hill has no banking relationship with JoAnn.)

The company closed a number of underperforming stores, implemented new systems to improve efficiencies, and took better control of its inventory this year, Richardson said. The firm has also benefited from a housing boom, which has lifted demand for home accessories.

With the stock up so sharply, some investors may be worried about jumping in, but Richardson believes there's still some potential upside. JoAnn class A shares trade at a price/earnings ratio of just 12.5 times 2002 earnings, while the class B shares, which are less liquid and have no voting rights, trade at just 10 times this year's earnings. "Compared to most other retailers or the broader market, it's still a cheap stock on a P/E basis," she said.

Another standout performer this year has been Angelica, which provides textile rental and laundry services for health care companies. Like JoAnn, Angelica was punished during the technology boom, falling almost 70% from 1998 to 2000. But shares began to recover in 2001, paving the way for a 121% surge this year.

Thomas Lewis, an analyst at C.L. King & Associates, said the firm discontinued its core business of manufacturing and marketing textiles back in January, enabling it to pay down much of its high-interest debt and significantly improve its balance sheet.

"At one point, they had over $100 million in debt with a 9% or 10% coupon; that was down to about $70 million at the start of the year, and it's now down to $20 million," Lewis said, adding that the firm is also paying a much lower interest rate. "They got out of a business that was hurting them and fixed their textile services business, which should grow nicely over the next few years."

Lewis, who owns Angelica but has not done any investment banking for the firm, said he expects earnings to grow by 18% next year after a projected 547% jump in profit this year.

Copy This

Another stock that has shown remarkable strength in 2002 has been Imagistics, a seller of fax and copy machines that went public in December of last year. Shares have surged 55% year to date. In March, Imagistics said it would buy back $30 million worth of stock, and increased its authorization to $58 million in October.

Although the business of selling and renting copiers is highly competitive, Imagistics has an advantage because it buys machines cheaply from Asia instead of manufacturing them. Also, the company is a large generator of free cash flow, a stock-watcher said, but cautioned that while the company is profitable, it may not see much growth.

Indeed, analysts expect sales to be flat next year, although earnings should continue to grow amid share buybacks.

Among larger-cap names, Halliburton and Providian were among the best performers in 2002 after devastating losses the year before. Halliburton skidded 63% in 2001, while Providian lost about 94%.

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Houston-based Halliburton jumped 51.5% this year, as the company took steps to settle some 30,000 lawsuits from plaintiffs who claim the firm exposed them to asbestos. Despite the progress on this front, Halliburton remains under investigation by the

Securities and Exchange Commission

for its accounting practices, and analysts aren't convinced that the stock price will continue its ascent.

Lehman Brothers analyst James Crandall recently downgraded Halliburton, saying that global exploration and production spending would be "disappointing" next year and that considerable risks remain with respect to the asbestos litigation.

Providian, which lends money to customers with poor credit histories, faces an equally uncertain future after surging 78% this year. While the company has spent the past year improving the credit profile of its customers, some analysts say the firm continues to face high credit losses.

"The new management team came in late last year and has basically been building up the business from scratch," said Richard McCaffery, an analyst at Morningstar. "But they're now in a position where they have to compete with the best players in the industry, and whether they can do that remains to be seen."

For the S&P 500 as a whole, just 143 stocks advanced this year, with just four stocks posting gains of 50% or more. On the S&P's small-cap index, some 237 stocks advanced, with 30 components climbing 50% or more.