Lehman's Uncommon Value List Is Uncommonly Tech-Focused - TheStreet

Heck, it seems like every day some Wall Street firm or another is putting out a top-10 list, so who cares that Lehman Brothers' 10 Uncommon Values is out today? Wasn't it just yesterday that Salomon Smith Barney came out with its "Future Economy Portfolio" for the "Future Economy"?

But the Lehman list is something like the mother of all top-10 stock lists -- it's been around since 1949, and regularly outperforms the market. Over the past 51 years it's returned average annual returns of 16.96% vs. the

S&P 500's 9.5%. There was a reason that the Salomon list came out Tuesday -- an attempt at one-upmanship and, perhaps, a hope that there would be some overlap. (There isn't.)

Last year's Lehman list actually contained more losers than winners -- such stocks as

AT&T

(T) - Get Report

,

Firstar

(FSR)

and

Microsoft

(MSFT) - Get Report

. But the strength of a few stocks --

KLA-Tencor

(KLAC) - Get Report

,

Intel

(INTC) - Get Report

and

General Instrument

(acquired early this year by

Motorola

(MOT)

) helped the Uncommon Values list to another year of outperformance. It returned 14.6% against the S&P 500's 5.7%.

The picks are selected from 80 or so stocks that Lehman's analysts think have the best chance of outperforming over the next 12 months. Despite this bottom-up nature, the resulting list conforms well with the view of the firm's chief investment strategist, Jeffrey Applegate, a longtime bull on the fast-growing companies.

"I find it interesting that we ended up with eight tech stocks out of 10 names, which I guess speaks to the world we live in," he says.

Though perhaps the tech focus is not too surprising. The analysts are charged, after all, with finding the stocks they think will perform best over the next year, and that can easily translate into finding the companies whose bottom lines will grow the fastest.

As a result, the list of "Uncommon Values" doesn't contain many stocks that would interest a value manager. Only

Cendant

(CD)

, still tarnished from its blowup two years ago, has a below-market price-to-earnings ratio. The rest are values only on a relative basis.

"

Lilly

(LLY) - Get Report

is trading at a pretty big discount, on a PEG

P/E-to-growth basis, to its peer group," Applegate points out. "We would argue it's undervalued.

Agilent

(A) - Get Report

-- that's not a cheap stock. It's selling at a relative P/E of 150% to the market. But we argue that the way they're running out their business, they have a growth rate that's more than double the market." And so on.

As well as the Lehman picks tend to perform, investors might be wary of jumping into these stocks right away. Because this list is so closely followed, the stocks tend to jump on the day it comes out. Last year, for example, the list tacked on more than 4% on the day it came out.

"I've found if you go to five trading days later, you tend to be back where you've started," notes Applegate.

The List

(

With comments from Lehman analysts.

)

  • Agilent Technologies. Analyst Edward White says Agilent is "an exceptional value among high-technology companies," and expects it to benefit from rapid growth in the telecommunications market.
  • BEA Systems (BEAS) . Neil Herman calls this the "premiere application server software company," and says it will benefit from rapid growth in e-commerce.
  • Cendant. Never mind that just thinking about Cendant gives some investors hives -- Jeffrey Kessler says the bad days are behind it. It's got strong franchises ( Ramada, Avis, etc.) and a burgeoning Internet strategy.
  • Gemstar International (GMST) . Michael Stanek thinks that Gemstar's "impending merger with TV Guide (TVGIA) , brimming patent portfolio, strong new product pipeline, and advertising revenues from its embedded OEM electronic programming guides" will run the stock to new highs.
  • Hewlett-Packard (HWP) . Put George Elling in the Carly Fiorina fan club. He says the H-P CEO has "taken bold steps to restructure the sales force and to push ahead H-P's e-services strategy."
  • Juniper Networks (JNPR) - Get Report. Picks and shovels. Mark Sue thinks that Juniper, as one of the leading suppliers of backbone routers, will continue to benefit from the global Internet buildout.
  • Eli Lilly. C. Anthony Butler thinks Lilly is best of breed in pharmaceuticals, the beneficiary of a strong pipeline.
  • Micron Technology (MU) - Get Report. As a "semiconductor memory pure play," Micron should benefit from increasing demand for PCs, servers and laptops, according to Dan Niles.
  • Nortel Networks (NT) . Tim Luke says Nortel is "one of the best-positioned global players in communications equipment." Its lead position in optical equipment is one of the factors that should propel it forward.
  • Tellabs (TLAB) . Tellabs products, focused on "the sweet spot of transmission and local access network buildouts, continues to accelerate," says Steven Levy.

Take a look at our

Analyst Rankings -- Equity 2000

survey to see how Lehman's analysts ranked.

As originally published, this story contained an error. Please see

Corrections and Clarifications.