BONES TO PICK.

• Author: Brown, Kathryn

What Tar Heel stocks have meat on them in 2000? Here are some our experts suggest sinking your teeth into.

It's a dog-eat-dog market, particularly if you follow North Carolina stocks. The approaching millennium did nothing to heel a stubborn trend: The big dogs dominated, as they tend to do, while the smaller ones slumped and whimpered.

That was bad news for most of Business North Carolina's eight panelists, who a year ago braved the volatile market and each picked three North Carolina-based stocks for 1999. During the tracking period, October through October, the Dow Jones industrial average rose to a peak of 11,326 in late August, bolstered by the Microsofts and Intels of the world. But most Tar Heel stocks, primarily small-cap and manufacturing companies, stayed flat -- or worse.

"Historically, the market broadens after time, but there's been a lack of depth" for the last several years, says Jim Green, president of SunBelt Capital Management in Charlotte. "It's been restricted to technology and high-cap stocks. If you're a small company, you have to do spectacularly to get attention."

Making matters worse for the panel, the Dow plunged more than 600 points the week before BNC's final rankings were tabulated. It teetered just above 10,000, though it was still up almost 20% from a year earlier. Why the jitters? "The bottom line is that the market's real worried about inflation, and people are selling off," says panelist David Gay, investment limited partner with J.C. Bradford Co. in Charlotte. That meant that on the day of reckoning, when BNC averaged the 12-month stock-price increases of the 1999 picks, just two panelists had something to cheer about. The other six, with averages ranging from -2.5% to -23.3%, were in the doghouse. Of the 18 stocks picked, just six ended up with a gain for the year.

Despite such dismal results, the panel's average gain was 23.8%. Credit RF Micro Devices Inc., the high-tech microchip maker, whose stock jumped 722.7%. RF Micro's success catapulted panelist John W. Davis III, managing director of BT Alex. Brown Inc. in Winston-Salem, into the winner's circle. His other selections? Bank of America Corp., up less than 1%, and Burlington Industries Inc., down a downright ugly 53.6%. Add in RF Micro, and Davis' average reached 223.3%. "Shows what one stock can do for a portfolio," Davis says with glee.

Other winning stocks were Speedway Motorsports Inc., with an 83.7% increase, and Lowe's Cos., up 58.7%. At the bottom of the stock pile was mobile-home maker Oakwood Homes Corp., finishing down a dismal 72.8%, hampered by missed earnings and mass layoffs. Two contract-research organizations, Quintiles Transnational Corp. and Pharmaceutical Product Development Inc., also lagged with decreases in the 60% range. Despite some panelists' predictions, the textile industry continued its downward spiral. Burlington, Cone Mills Corp. and Unifi Inc. finished with an average decline of 29.6%.

Enter this year's panelists. A few think 1999's winning stocks will climb even higher in 2000. Three selected Speedway, largely due to a new TV contract that will net the company more than $100 million. "It will jump revenues with virtually no expense, and it goes straight to the bottom line," Gay says. "I don't think adding four new races would have that effect." He's picked Speedway again this year after it boosted his average increase in 1999 to 45.1%.

Hopes are also high for financial-services companies. BB&T Corp., Wachovia Corp., Centura Banks Inc. and First Charter Corp. each got a nod. Davis advises investing in any of the state's "Big Four" banks -- Bank of America, First Union Corp., Wachovia and BB&T. With the exception of Wachovia, he says, the stocks of each are cheap, given their value.

Others panelists are banking on last year's losers, following Wynonna Judd's theory that when you reach rock bottom, two ways are left -- straight up or sideways. Two selected Quintiles as an aggressive pick for 2000; another tapped PPDI to rebound. "That whole sector [contract research] has just been hammered," says George Holden III, a first-time panelist and investment officer in Raleigh with Holden Investment Group, affiliated with First Union Securities Inc. He picked Quintiles because it's "forging ahead, trying to become more technologically advanced. If they execute their business model they'll do well. It's a value play, but it will probably take a couple of quarters. It must prove to Wall Street it can do well."

Two panelists are eyeing Blue Rhino Corp. "If small companies stumble, they get shot," Green notes. That's what happened to Blue Rhino, which operates propane-cylinder exchanges for gas grills at more than 18,000 locations around the country. It went public in May 1998. After some accounting troubles and restated earnings, its stock had settled into the $6-to-$7 range in November, down from a high of $25.63 last winter. The company's earnings per share are expected to grow, and its sales keep climbing, leading Green to believe it's a wise, if bold, investment.

How will the panelists' picks fare? Holden predicts that after a volatile year-end, "the market will take off and do very well" in January. He sees technological, financial-services and pharmaceutical stocks leading the rally. After four years of large-cap domination, Davis expects value and mid-cap stocks to take their turn at popularity. That would boost the fortunes of North Carolina stocks. "It's unprecedented to have a fifth year that favors the same asset class," Davis says. That's conventional wisdom. Let's just hope the doggone market doesn't try any new tricks.

2000 STOCK PICKS

Family Dollar Stores Inc.

Strong management, continued store expansion and better-than-expected earnings releases continue to drive this Matthews-based company. Family Dollar will use only five advertising circulars in 1999, down from nine the year before. This should further lower advertising expenses and boost gross margins. Family Dollar operates 3,354 stores in 39 states and has increased the dividend for 23 consecutive years.

Speedway Motorsports Inc.

Racing is simply the "fastest" sport in town. The popularity and growth of NASCAR (and racing in general) has been well-documented in recent years. The single-biggest factor lately has been the announcement of expected...