Bulls ayes: here's how our stock pickers hope to beef up their portfolios in '05.

• Author: Maley, Frank
• Position: FEATURE

About 29% of Americans regularly get their news from the Internet, according to The Pew Research Center in Washington, D.C. That's up from 23% in 2000. Count Bobby Edgerton among the other 71%. In fact, he still doesn't use a computer. One of his employees at Raleigh-based Capital Investment Counsel handles his e-mail. Likewise, he isn't one to blindly follow financial fads. When good companies go bad in the eyes of investors and their stock prices drop, he's more likely to buy. "Bad news is good news for a guy like me."

He liked Charlotte-based Duke Energy in late 2003, when it suffered from heavy debt, was well on its way to losing $1 billion for the year and was trading at about $17 a share. Duke rebounded, and--along with Charlotte-based snack maker Lance, another depressed stock in 2003--it helped him win BUSINESS NORTH CAROLINA'S annual stock-picking competition. Each member of the panel--all of them professional investors--picks three North Carolina stocks he thinks will produce the biggest average total. return over a set 52-week period. Edgerton managed a 31.7% return for the period that ended Oct. 15.

All but one of last year's panelists managed positive returns despite a sluggish market for stocks. The Dow Jones industrial average gained just 2.2% during the period. The S & P 500 did little better, returning 6.6%.

[ILLUSTRATION OMITTED]

Edgerton picked Duke again this year, banking on its turnaround under CEO Paul Anderson and its $1.10 annual dividend. Another pick, Greensboro-based semiconductor maker RF Micro Devices pays no dividend but closed Oct. 15 at just $6.67, leaving plenty of room for improvement. His third pick seems to run counter to his bargain-bunting instincts. Greensboro-based Jefferson-Pilot is the priciest of all the panelists' picks at $48.37 on Oct. 15, but the insurance company's price-earnings ratio of about 13, one of the lowest in the state, made it seem cheaper. "Business is good and steady but maybe not up to Wall Street's expectations," Edgerton says.

Duke and RF Micro were popular picks this year, also finding favor with Frank Black of Charlotte-based Southeast Investments and Doug Smith of Charlotte-based First Charter Investment Services. Several panelists are optimistic about the prospect of increased corporate earnings in 2004 and the buildup of cash reserves. In November, Barron's reported that the cash balance of companies on the S & P 500 was $590 billion, up from $261 billion five years earlier. Many companies are coming off years of fiscal belt-tightening, and some might have been delaying spending until after the presidential election. "Corporations have a lot of flexibility to buy shares, to do mergers and acquisitions and to increase dividends," says Frank Jolley of Rocky Mount-based Jolley Asset Management.

That's the bullish part of his outlook for 2005. Jolley worries that some of the economic stimuli present in the past two years--lowered interest rates, tax cuts in 2003 and defense spending caused by conflict in Iraq--will have less impact now. Government spending could be curbed, too. Unless conditions change, the Congressional Budget Office expects the nation's budget deficit to hit $2.3 trillion by 2014. Presidents often impose necessary but politically unpopular fiscal discipline in the first year of a new term, Jolley says. "I think earnings will be OK. I don't think they're going to be fantastic."

2005 STOCK PICKS

Frank H. Black

CEO

Southeast Investments N.A. Inc.

Charlotte

[ILLUSTRATION OMITTED]

RF Micro Devices Inc.

This Greensboro-based manufacturer of radio-frequency integrated circuits designs and makes products used in cell phones, base stations...