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He wants companies with an edge.
A “masterpiece-type” company, one with a long-term sustainable advantage over competitors, is what Jeff Van Harte looks for when he buys stocks for Transamerica Premier Equity (800-892-7587). Van Harte also likes companies that are in the early stages of changing for the better. The favorites he cites here are among his fund’s ten biggest holdings.
* Qualcomm (QCOM). To Van Harte, Qualcomm is the Intel and Microsoft of the wireless-communications world rolled up in one. As the owner of the proprietary CDMA standard, Qualcomm receives royalties and licensing fees from wireless-equipment companies. It also makes chips for use in wireless devices. A recent cross-licensing deal with Nokia, the leading wireless-handset maker, is a “watershed event” that cements Qualcomm’s leadership position. This is a more expensive stock than Van Harte’s other picks. At $66, it sells at 51 times the $1.25 to $1.30 per share that he thinks the company can earn next year. He puts long-term growth at 25% per year.
* Rite Aid (RAD). This nationwide operator of 3,880 drugstores is changing for the better, in Van Harte’s view. The stock, which had been as high as $51 in early 1999, plummeted to less than $2 late last year in the wake of accounting irregularities and allegations of improprieties by previous management. But, says Van Harte, a new executive team led by Robert Miller took over 22 months ago and has done a good job of fixing the mess. Meanwhile, the company, which should benefit from an aging population’s growing demand for pharmaceuticals, “is set up to grow nicely.” Rite Aid has quite a bit of debt-$3.8 billion–but Van Harte expects it to begin generating positive free cash flow this year. The stock is now $8.