Portfolio: leaders of the pack - Borders Group; Fiserv; Lincare; United Rentals

Kiplinger's Personal Finance Magazine,  July, 1998  

Tags: Fiserv Inc., leader

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Arden Armstrong, lead manager of MAS Mid Cap Growth fund (800-354-8185), selects medium-size companies that are either first or second in their industries or niches and are capable of delivering earnings growth of at least 20% per year.

BORDERS GROUP

(BGP, New York Stock Exchange, recent price $34). Borders is the world's second-largest book retailer, behind Barnes & Noble. Calling the business a "great demographic play," Armstrong says that book sales are growing as the population ages. In addition to 200 superstores, Borders owns Waldenbooks, which has more than 900 stores and is the nation's largest book retailer in shopping malls. Selling at 28 times consensus estimated earnings of $1.22 for the year ending January 1999, Borders's stock is a bit cheaper than Barnes & Noble's, Armstrong notes.

FISERV

(FISV, Nasdaq, $62). The leading provider of account- and transaction-processing services for banks, brokerages and other financial institutions, Fiserv's business is "very stable, with recurring revenues and good internal growth," says Armstrong. She figures earnings can grow 10% per year from existing services and another 10% per year via acquisitions. A "near-term kicker," as she puts it, is that increasing numbers of banks are likely to contract out their data processing because of the challenges of fixing year 2000 problems in their own systems. Fiserv is expected to earn $2.03 per share this year, giving it a P/E ratio of 31.

LINCARE

(LNCR, Nasdaq, $40). It's one of the nation's largest providers of oxygen and other respiratory-therapy services for in-home patients suffering from pulmonary diseases. Lincare, Armstrong says, managed investor expectations particularly well when medicare cut reimbursements for its services last year. She expects Lincare to grab market share from rivals and also acquire some of them. Lincare sells at 30 times expected 1998 profits of $1.34 per share.

UNITED RENTALS

(URI, NYSE, $34). Armstrong's most aggressive pick, United Rentals, was formed last year to create through acquisitions a large equipment-rental company. With 109 locations in the U.S. and Canada, the company rents everything from heavy construction and industrial equipment to hand tools and tents. United Rentals is growing "very, very fast," says Armstrong, with earnings expected to soar in 1999 to $1.23 per share, from an expected 60 cents this year. The company is a play on both consolidation of the equipment-rental business and the growing trend toward outsourcing. Armstrong says she's comfortable with the company because many of its managers came from United Waste Systems, a consolidator in the garbage-collection industry.

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