Target prices: after a year when only one was in the black, the stock portfolios picked by our panel of pros all scored in 2003. Will their aim be true in '04?

• Author: Maley, Frank
• Position: Feature

Frank Jolley is trying to play it cool. He says he doesn't take BUSINESS NORTH CAROLINA's annual stock-picking competition seriously. Yet last year's champ, who's president of Jolley Asset Management in Rocky Mount, knew before the official numbers were crunched this year that someone else had captured his crown.

He had set up an electronic spreadsheet with all the panelists' picks and a data feed that continually updated the prices throughout the year. In the contest, each panelist picks three stocks he thinks will produce the biggest average percentage gain, adjusted for splits, over a set 52-week period.

Every three or four weeks, Jolley would check on his picks: Charlotte-based Duke Energy, Charlotte-based Wachovia and Hickory-based cable maker CommScope. Shortly after the contest's conclusion, he was asking if his reign was over. It's not that he has a compulsive desire to win, mind you. "I don't want to go out and embarrass myself. I don't care if I'm at the top, but I don't really want to be near the bottom."

That defensive mindset served him well a year ago, when he was the only panelist to eke out a positive return. And it worked pretty well during the 52-week period that ended Oct. 17--when all the panelists finished with a positive return. Though Jolley didn't win, he came close, finishing second behind George Shipp, chief investment officer of Richmond, Va.-based Scott & String-fellow. Jolley had picked what he thought were depressed stocks with potential and was rewarded by CommScope, which gained 81%, and Wachovia, which increased 31%. He, like another panelist, lost his bet that Duke would pull out of its slump. It fell 2%.

Shipp, who won two years ago, rebounded from a dismal performance last year to take back his title. He did it with cheap, unglamorous stocks that investors learned to love during the 52-week period. High Point-based textile maker Culp nearly doubled in price while Raleigh-based trash hauler Waste Industries USA shot up 49%. His dark horse, Charlotte-based MedCath, took a beating and, despite a late rally, lost 15.8%.

This year, the rules change: The return, and best percentage gain, also will be adjusted for dividends. In 2004, Shipp likes Wilmington-based Cooperative Bankshares and a couple of life-science stocks--Burlington-based Laboratory Corporation of America Holdings and Wilmington-based Pharmaceutical Product Development. LabCorp runs diagnostic tests for hospitals and doctors' offices. PPD shepherds drug candidates through the regulatory process.

Jolley likes PPD, too, along with Charlotte-based Coca-Cola Bottling Company Consolidated and Charlotte-based aeronautics-parts maker Goodrich. "We've had a huge rally off the bottom since March, and the smaller-cap names rallied much more than the larger-cap indexes. I was trying to come up with companies where the fundamentals were improving and that hadn't participated in the rally. Coke Consolidated fell into that camp, and PPD fell into that camp."

Goodrich has been caught in an industry-wide downturn for much of the past two years. Commercial aviation is still down, Jolley says, but defense spending...