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12-14-2006, 11:17 AM
Inflation: 3 Strategies To Protect Yourself
Hail Mary Stock Picks
Andrew T. Gillies 12.11.06

If you had to bet it all on a single stock, which one? Our annual Love Only One panelists go for Corning, PolyMedica and 15 others.
On this page we repeat a venerable FORBES ritual known as Love Only One. The gist: Each year we invite 12 experts to give us the stock they deem best poised to outrun the market over a 12-month period. We also ask 5 bears to name a likely laggard. When the time's up, those successful get return invitations; the rest make way for new contestants.

Bears won bragging rights for the Love Only One class of 2006. For the 12 months ended Oct. 31 their picks rose an average 6%, comfortably behind the S&P 500's gain of 14%. Bulls made a decent stab but still collectively trailed the market by three percentage points.

The shortest short was Harindra de Silva, a finance Ph.D. and the president of Los Angeles quant shop Analytic Investors. Last year he saw trouble for Ebay (nasdaq: EBAY - news - people ) in analyst downgrades and insider selling. The stock bore out his foreboding, losing 19% of its value from Halloween 2005 to Halloween 2006.

Back for his fourth year, De Silva tags Harley-Davidson (nyse: HDI - news - people ) as a loser. Its shares trade not far from a ten-year high, but De Silva again views heavy insider selling as a negative, as well as a rise in shorting activity. If the economy slows, he adds, discretionary purchases like big motorcycles will suffer.

Sarah Ketterer, chief executive and portfolio manager at Los Angeles' Causeway Capital Management, also returns for a fourth year. Her choice of Kingfisher (other-otc: KNGFY.PK - news - people ), a British home improvement retailer, led the bulls across the finish line with a 34% gain.

For 2007 Ketterer, an international specialist, offers up Mediaset (other-otc: MDIUY.PK - news - people ). Silvio Berlusconi owns 35% of this $14 billion (market cap) company, which operates three national television channels in Italy. Its U.S.-listed shares have been shaky, Ketterer explains, thanks in part to worries that Italian regulators will force the company to relinquish market share. Ketterer finds the stock attractive, even with the worst outcome on the regulatory front. She points to the company's healthy balance sheet and generous dividend. Mediaset is valued at 16 times 2007 earnings.

David Goerz, chief investment officer at HighMark Capital Management, was close on Ketterer's heels with a 33% gain for Ryder System (nyse: R - news - people ). He's back with a blue chip, Intel (nasdaq: INTC - news - people ). Goerz suggests that the stock will ride a rising tide of revenue and profitability thanks to its restructuring efforts and firm pricing for its Core 2 Duo and Quad Core processors. The Wall Street consensus earnings forecast for 2006 is 85 cents per share. Next year it should deliver $1.14. It's trading at 20 times that sum.

In the bull's-eye department we acknowledge Kevin McClintock, a partner at Boston hedge fund Burl Capital. Last October McClintock, then chief equity strategist at Babson Capital Management, told us that South Dakota utility NorthWestern looked like a takeover play. In April NorthWestern accepted an all-cash bid from an Australian investor in utility and infrastructure assets, and McClintock finished the contest up 19%.

McClintock now targets FoxHollow Technologies (nasdaq: FOXH - news - people ), maker of a disposable catheter used to unplug arteries. He cites recent product extensions, an expanded sales force and FoxHollow's affiliation with Merck & Co. (nyse: MRK - news - people )

Six bulls debut this year. Bruce Bartlett directs growth stock investing for Lord Abbett, a money manager with $107 billion in assets. Bartlett likes Corning (nyse: GLW - news - people ) for its strong market positions in both liquid crystal display technology and diesel emissions control systems for factories and vehicles. Orders for Corning's optical fiber will benefit from big broadband rollouts like Verizon (nyse: VZ - news - people )'s plans to hook up 18 million homes to fiber by 2010.

Arthur Hogan serves as chief market strategist for investment bank Jefferies & Co. He gives us Scientific Games (nasdaq: SGMS - news - people ), which sells equipment and services related to wagering and lotteries. Of the 42 U.S. states (including Washington, D.C.) that sell instant lottery tickets, 31 use Scientific Games systems. Hogan applauds the company's addition of the New York State Lottery and the potential to win New York's online lottery business in 2007. Internationally he sees room to expand.

Continuing the tech theme: Microsoft (nasdaq: MSFT - news - people ) is a best bet for Robert Millen, principal at Jensen Investment Management and comanager of the $2.2 billion Jensen Portfolio. Microsoft's stock price has barely moved in the past five years. But the stagnation should end as Microsoft rolls out Windows Vista and an upgraded Office suite. Millen also thinks $36 billion in planned share buybacks will help the stock.

Paul Noglows directs research efforts at Lazard Capital Markets, one of the businesses separated from Lazard Frères & Co. in May 2005. He goes with Deckers Outdoor (nasdaq: DECK - news - people ) on the strength of the footwear concern's management and its plans to revamp and expand its Ugg and Teva shoe lines. But it is diamonds that glitter for Jeffrey Schappe, who oversees $16 billion in assets as chief investment officer for Raleigh, N.C.'s BB&T Asset Management. He picks Tiffany & Co. (nyse: TIF - news - people ), suggesting the jewelry retailer will reap benefits from an upgraded supply chain and improving results from Japan.

PolyMedica (nasdaq: PLMD - news - people ) is the choice of Kathryn Vorisek, chief investment officer for Chicago's Fiduciary Management Associates' $1.3 billion portfolio. PolyMedica runs a mail-order business for diabetes-testing supplies. Beyond a robust market for such items, namely 19 million diabetes sufferers in the U.S., Vorisek has her eye on PolyMedica's pharmacy segment, which sells diabetes-related drugs and whose sales Vorisek expects to double to $400 million next year.

One new bear joins up this year. Barry James runs James Investment Research and, among other portfolios, the long-short James Market Neutral Fund. He's down on Cyberonics (nasdaq: CYBX - news - people ), a medical device maker specializing in treatments for epilepsy and other ailments. Red ink and a loopy price-to-book ratio of 109 convince James the stock will head south.