High fliers: our panel of professional stock pickers predict which Tar Heel shares will be the top performers next year.

• Author: Frank, Maggie
• Position: FEATURE - Discussion

A year ago, Frank Black gave this characteristically optimistic outlook on the economy: "You've got oil prices sky high, interest rates going up, and the market refuses to go down. It's time for the good news." The CEO of Charlotte-based Southeast Investments N.C. was right. "No. 1, [the Fed] quit raising interest rates. No. 2, oil prices finally peaked and are coming down."

And the prices of many stocks of companies based in North Carolina have been rising, good news for all participants in BUSINESS NORTH CAROLINA's annual stock-picking contest--but especially for Black. His faith in a struggling telecom plus solid performances by his other picks won the contest for the second straight year. And this time, it wasn't even close.

Each panelist selected three Tar Heel stocks they thought would yield the best average total return during the 52-week period that ended Oct. 27. None of the picks lost money, and only one underperformed the S & P 500. Black's choices, led by Charlotte-based telephone company US LEC, averaged a whopping 144.4%--nearly equaling the gains of his four competitors combined. Bobby Edgerton, president of Raleigh-based Capital Investment Counsel and 2004's champ, wound up in last place with 28.8%. Some years, that would be good enough for first or second.

The market was so bullish for so many stocks you might even have done well with random choices. Charlotte magician Eric Treese did. Last year, BNC had him pull three cards from a deck marked with ticker symbols of the state's largest public companies. That trick produced a return of 72.8%--better than all the panelists but Black.

It will be a tough act to follow, but our stock pickers are game. In fact, Black has a card up his sleeve. He chose US LEC again, but it plans to merge with Fairport, N.Y.-based Paetec Communications, a private phone company. The deal was expected to close in the fourth quarter and should allow the combined company to cut costs. (His return will be based on that US LEC's investors pick up in the new stock.) He also picked RF Micro Devices for the third straight year and Krispy Kreme Doughnuts, a takeover candidate. RF Micro rose nearly 44% last year, and Krispy Kreme's price more than doubled.

Two stocks were picked by more than one panelist--hardware retailer Lowe's and Progress Energy, which has been selling assets, reducing debt and focusing on power generation and distribution. "Progress Energy is coming out of a significant transition that I think is going to give them a catalyst for accelerated growth," says Alex Miles, managing director of Charlotte-based Wealth Trust Advisors. Tom Moore, principal at Winston-Salem-based Littlefield Capital Management and runner-up to Black, chose Lowe's despite a slowdown in the housing market. In late October, Lowe's was trading at about $30, just 2% above its price a year before, adjusted for splits and dividends. Moore says it's an opportunity to buy Lowe's on the cheap.

What goes up must go down. Even Black admits the market magic can't last, but he doesn't think it will run out in 2007. "Then the question is the next year. Ask me next year."

Editor's note: The stock pickers, their companies or their clients may have a position in the stocks they've chosen.

2007 STOCK PICKS

Frank H. Black

CEO

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