n 2002, the third year of a grinding bear market,most analysts were happy just to make contactwith the ball. Parking one in the bleachers took aspecial talent as the Standard & Poor’s 500 indexfell 32 percent and the Nasdaq composite index

gave up 23 percent. The biggest blast among the tenstocks highlighted in this year’s Home-Run Hitters— Institutional Investor’s annual selection of the bro-kerage analysts who picked the best-performingstocks of the previous year — was Royal Gold, whichposted a 382.6 percent return. That was our shortestwinner since 1994 (Stratacom, up 317.9 percent).

If the Internet bubble era — remember Qual-comm’s 2,600 percent gain in 1999 or VeriSign’s 1,200percent return that same year? — required stock pick-ers to suspend their disbelief, this bear market is testingresearchers’ basic skills — such as discerning a corpo-

rate turnaround. Immucor, identified by John Reillyof Westchester, New York–based CJS Securi-

ties, battled product problems and a proxyfight before soaring 153.5 percent last

year; Jarden Corp. (up 204.1 percent)struggled with an underperforming

business before prospering undernew management; retailers Pets-mart (up 74.1 percent) and Jo-Ann Stores (up 221.4 percent)both had to solve inventorymanagement issues; and CCCInformation Services Group(up 186.9 percent) sufferedthrough an Internet hangoverbefore its big run. Another In-ternet survivor, Amazon.com,

which made our list four yearsago with a gain of nearly 1,000 per-

cent, returns this year with a more mod-est 74.6 percent increase. BostonScientific Corp. (up 76.3 percent) alsomakes a another appearance this year; themedical device maker was a 1995 HomeRun with a 83.4 percent rise that year.

As usual in a bear market, defensive,consumer stocks are well represented— Dreyer’s Grand Ice Cream (up 84.9percent) and Coach (up 68.9 percent),in addition to Jarden, Jo-Ann and

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RESEARCH

In a tough nine innings,our sluggers stillmanaged to smack one deep.

DAVID MANNJohnson Rice & Co.

already climbing through June 2002, when Nestléand Dreyer’s announced a $2.8 billion merger planworth $83 to $88 per share at certain periods in late2005, 2006 and 2007. Katzman downgraded to holdat $68; the shares ranged from $67 to $71 for thebalance of the year.

In March 2003 the Federal Trade Commissionnixed the deal as anticompetitive, and Katzman ad-vised selling based on the fundamentals of an inde-pendent Dreyer’s. The shares fell about 18 percentin the days that followed. In mid-March, with thestock at about $69, the companies were still tryingto formulate a deal the FTC could approve. “If thedeal closes, it will trade back up to $75,” the ana-lyst says. “If it collapses, the fundamentals wouldgive you $30 to $40.”

DREYER’S GRAND ICE CREAM

Eric KatzmanDeutsche Bank Securities

(Nasdaq: DRYR) +84.9%

Looking to expand his food coverage beyond large-cap staples such as Kellogg Co., former Merrill

Lynch & Co. analyst Eric Katzman hit upon midcapDreyer’s Grand Ice Cream in early 2000. He liked thecompany’s plan to boost its margins and efficiency,and Swiss food giant Nestlé owned a 12 percentstake that was expected to grow. Katzman, 38, rec-ommended the stock in March 2000 in the low 20s.When he left Merrill that fall for Deutsche Bank Secu-rities, he took the Dreyer’s recommendation with him,urging clients to start scooping up the shares at $28.

One key to Dreyer’s strategy was a $200 million-plus direct-to-the-store delivery system, or DSD,that let the company bypass warehouses and dis-tributors and stock retailers’ shelves directly. An-other building block: pushing such higher-margin“superpremium” ice cream as Godiva and Dreameryharder than its premium brands, Edy’s and Dreyer’s.

Although surging butterfat prices squeezed mar-gins in 2001, driving the stock down from $36 inJanuary to the high $20s in the fall, the company’sstrategy paid off in 2002. Dreyer’s highly recogniza-ble brands, efficiencies delivered by DSD and growthof superpremium sales boosted margins to 13 per-cent from 11 percent and jacked up earnings pershare to $0.94 from $0.24 in 2001. The stock was

But Boston Scientific hadn’t taken its eye off theball completely: In 1997 the company had startedworking with a promising compound, paclitaxel, tocreate drug-eluting stents, cardiovascular deviceswhich keep clogged arteries open and deliver med-ications designed to keep scar tissue from forming.Impressed by early clinical data from medical giantJohnson & Johnson, the market seemed to assumethat only J&J would be able to deliver a viable prod-uct. But in February 2002, after polling interven-tional cardiologists involved in the preclinicaltesting on paclitaxel, Weinstein, 32, concluded thatBoston would “get it right.” The payoff could behuge, given the company’s relatively small size.

Weinstein recommended Boston Scientific at$22 in February 2002; the shares hit $43 by year-end. He sees more upside. The researcher expectsthe drug-eluting stent market to more than triplefrom $1.4 billion in 2002 to $5 billion in 2004, andcalculates that BSX’s earnings per share will gainmore than $0.05 for every two points of marketshare. Weinstein also knows that Boston Scientificis a fierce competitor: It quadrupled its penetrationof the $2.2 billion bare (non-drug-eluting) stentmarket, to 25 percent, between the third and fourthquarters of 2002.

The competition in this new marketplace is justgetting started. Regulators in Europe approvedBoston Scientific’s stents in January 2003; theproduct launched there February 17. Weinstein ex-pects the company to gain Food & Drug Adminis-tration approval for U.S. use by year-end. He

BOSTON SCIENTIFIC CORP.

Michael WeinsteinJ.P. Morgan Securities

(NYSE: BSX) +76.3%

For five years J.P. Morgan Securities’ MichaelWeinstein had steered clients clear of Boston

Scientific’s shares. He feared that the Natick, Mass-achusetts–based medical device company’s diffi-culty absorbing a series of acquisitions wasdistracting it from R&D. “It was no longer the mar-ket leader,” he says, “and execution started to slip.”The stock, which had traded as high as $47 in July1999, fell to almost $12 in December 2000.

Large-cap stocks

Petsmart. And befitting a year in which global tensions rose andsafe havens were scarce, Royal Gold led the way.

A word on how we pick our sluggers. Greenwich, Connecti-cut–based FactSet Research Systems listed the five top-performingstocks with a total market value between $75 million and $1 bil-lion, and the five biggest gainers among stocks with market capsexceeding $1 billion. We excluded companies that went public in2002, as the shares must have traded for the entire year. All equi-ties on the list had to be trading at $5 or more at the start of 2002.Performance reflects total returns with dividends reinvested.

Next we used research performance measurement companyInvestars.com of Hoboken, New Jersey, to identify the analystswho covered each stock and when they made their calls. Wethen consulted with the management or investor relations offi-

cials of each company to pinpoint the analyst who first recom-mended the shares or best understood their value over the mostrecent market cycle. We eliminated analysts working at firmsthat underwrote a company’s IPO if it occurred in the past fouryears, since they may be duty-bound to recommend the shares.

Join us then, in applauding the efforts of this year’s Home-Run Hitters. They’ll need to keep their eye on the ball: Thenew season’s barely started, and already a number of 2002’sbest-performing shares are in a wicked slump.

Assistant Managing Editor, Research, Lewis Knox wrote theoverview; Contributing Editors Jeanne Burke and Ben Mattlinand Contributors Pam Abramowitz and Carolyn Sargent wrotethe profiles that follow.

INSTITUTIONAL INVESTOR

Small-cap stocks

JARDEN CORP.

Charles StrauzerCJS Securities

(NYSE: JAH) +204.1%

In late September 2001 new management tookcharge at Alltrista Corp. (renamed Jarden Corp.

in June 2002), the Rye, New York–based maker ofBall- and Kerr-brand home-canning products. Theexecutives, CEO Martin Franklin and CFO IanAshken, had their work cut out for them: Alltrista’sper-share earnings had tumbled 72 percent in theprevious two years, and the stock had slumped 55percent in the preceding 12 months.

But Charles Strauzer, managing director at CJSSecurities, had “no doubts about their ability,” he

recalls. Strauzer, 35, who joined the White Plains,New York, small-cap specialist when it was createdin 1998, knew that Franklin and Ashken had gottenimpressive results at another troubled company,Benson Eyecare Corp., and two spin-offs. The man-agement duo also owned 9 percent of Jarden and,having previously tried to buy it outright, arrivedwith a well-thought-out plan.

Franklin and Ashken almost immediately sheda lagging molded-plastics business and began toemphasize Jarden’s consumer brands. Theirstrategy to boost sales by introducing new prod-ucts, such as home-canning kits, and acquiringcompanies with related food-preservation prod-ucts also held promise, Strauzer thought. He puta strong buy on Jarden in January 2002 at a split-adjusted $8.50.

“No one else had recognized or understood thechange going on there,” says Strauzer. In 2002 Jar-den’s net income jumped to $2.52 per fully dilutedshare from a 2001 net loss of $6.71, thanks partlyto the April 2002 purchase of Tilia, maker of theFoodSaver vacuum-sealing device.

By year-end the shares hit $24; they traded at$25 in mid-March. Even if Jarden’s consumer linestumbles, Strauzer sees steady revenue from an-other business unit, which supplies zinc for U.S.and Canadian pennies. “It’s a cash cow and a cush-ion against consumer cyclicality,” he says. His tar-get for Jarden: 15 times his 2003 EPS estimate of$2.65, or $39.75, although he adds that he’s under-estimated earnings every quarter.

estimates 2003 earnings of $2.50 per share, with$3.00 possible. And the analyst thinks the shares,trading at $44 in mid-March, have the potential toreach $55 by year-end.

INSTITUTIONAL INVESTOR

DANA TELSEYBear, Stearns & Co.

JOHN REILLYCJS Securities

ERIC KATZMANDeutsche Bank Securities

IMMUCOR

John ReillyCJS Securities

(Nasdaq: BLUD) +153.5%

CJS Securities analyst John Reilly, 24, was stilla Fordham University undergrad when Immu-

cor began to unravel. The Norcross, Georgia, sellerof machines and reagents used to type blood hadborrowed about $36 million in 1998 and 1999 tobuy out a couple of rivals. But pricing pressuresdepressed earnings in March 2000, investors fled,and the company ran afoul of its debt covenants.Things got worse when three months late, Immu-cor had to halt sales of an automated blood-typingmachine after reports of malfunctions surfaced,forcing the company to provide the reagents gratisfor 14 months.

The problems took a toll on Immucor’s finan-cials. In fiscal 2001 (ended in May) the companylost $0.74 per share. Immucor stock fell from about$9 (adjusted for splits) in January 2000 to less than$2 in mid-2001. The company was even the subjectof an unsuccessful proxy fight in late 2001 by in-vestment fund Kairos Partners of Norwell, Massa-chusetts.

Eventually, Immucor caught a break. In Sep-tember 2001 the company resolved its blood ma-chinery problems and renegotiated its debt. Itsacquisitions also began to pay off, allowing it to ex-pand market share and raise prices.

It wasn’t until a few months later that Reilly, atan investor’s suggestion, started investigating Im-mucor, initiating coverage with a strong buy in June2002 at $12. Reilly noted that only Immucor offersan FDA-approved, fully automated blood-typingmachine; he also liked its recurring revenues.“Once Immucor places a machine, the customerhas to purchase the reagents over the machine’sfive- or seven-year life,” he says. Indeed, 2002sales grew 21 percent. When Reilly downgradedthe stock to a buy on valuation last November, ithad climbed $2 beyond his $20 target. The stockclosed 2002 at $20.

Reilly says the good times still have a ways torun and maintains a $25 price target. “Immucor hasanother three to five years of continual revenuegrowth.” i

Reprinted with permission from the April 2003 issue of InstitutionalInvestor Magazine. Copyright 2003 by Institutional Investor Magazine.