Speculator sport.

• Author: Scheer, Lisa
• Position: Picking new stock issues - Money Matters

There's an art to picking new stock issues. Over the past two years, of course, the market has been flooded with them. In the first six months of 1992 alone, 298 companies went public across the nation, raising $17.7 billion. In North Carolina, new stocks range from the leveraged leviathans of the '80s -- Cone Mills Corp. and Burlington Industries, for instance -- to cash-hungry small companies, such as Embrex Inc. and Sphinx Pharmaceuticals Corp.

Some IPOs can deliver rich rewards, but betting on the winners is tricky. Overpriced issues, heavy insider selling, debt-laden balance sheets and sleazy underwriters are just a few land mines that can sabotage a stock's performance.

Robert Natale, who analyzes new issues for Standard & Poor's Corp. in New York, says the typical IPO outperforms the market during its first three months of trading -- and underperforms it after that. In the first half of '92, new issues fell 8.1%, compared with a 4.7% rise for the Dow Jones industrial average and a dip of 2.2% for the S&P 500.

What's the simplest way to pick a winner? Natale says the best risk-reward equation lies usually with larger, established companies. "Small companies have all their eggs in one basket, in one product," he says. "If the market gets large enough, a number of competitors enter into it and profit margins often decline."

Money manager Jim Green of Oak Value Capital Management in TABULAR DATA OMITTED Durham looks for new issues with revenues in excess of $100 million -- and diversified operations. "At that point, they are mature enough in their business and have put together enough of a management team that you can minimize the number of surprises," he says.

Both Green and Natale like Cone Mills (COE-NYSE), the Greensboro-based textile company (1992 revenues: $633 million) that had gone private via an LBO in 1984 and makes denim for Levi Strauss, among others. In June, a shaky market brought the initial offering price down to a cheap $10. Some of the $64 million raised from the Cone offering went to repay debt, now 44% of total capitalization, compared with 56% before the offering.

At the offering price and with estimated earnings of $1.45 per share in '92, Cone was selling at just seven times earnings, compared with an average of 13 times for textile stocks, making it a good buy, Green says.

Green also likes Coastal Healthcare Group (CGRP-NASDAQ), a Durham-based provider of physician contract-management services. Last year, revenues...