If You Could Love Only One...

EQUITIES Magazine

Fall/Winter 2004

By George Brooks

If you're looking for consistent performance, how about the best record on the planet? The combined portfolio selections of our Favorites of the Famous stock pickers whipped the S&P 500 again. Wow, that is 14 of the last 17 times! EQUITIES is hot! Since last December to this December the choices of EQUITIES pros gained over 34% compared to only 12% for the S&P 500. Seven winners out of last year's nine picks. Now 11 new stocks for 2005.

Uncertainties abound. U.S. casualties are mounting in the war in Iraq. Soaring government deficits plus rising interest and inflation rates complicate the push for major changes in long-standing programs, such as Social Security under funding and our tax structure. Nevertheless, our Favorites of the Famous money managers found certain niches which can be exploited for above average gains in 2005.

Bob Flaherty
Being ill while recovering from the side effects of a prostate cancer implant, EQUITIES Special Situations Editor Bob Flaherty, also editor of EQUITIES Magazine, has been making fewer picks in his special situations newsletter. Perhaps taking fewer swings is the reason, but Bob has been hitting more homeruns. According to Hulbert Financial the results have been very good. Besides being up 76.5% in 2003 more than double the 31.6% gain for the Wilshire Index Bob's newsletter has been ahead of the averages three consecutive years including 2004.

His favorite for 2004 was InterOil Corp (AMEX: IOC 39.75) which has soared 94% since its stock moved from trading on the illiquid Pink Sheets to a listing on the American Stock Exchange. This very speculative startup company is developing a refinery and has a vast amount of acreage to use for searching for oil in Papua New Guinea. Bob thinks this adventure is still just beginning.

For 2005 Bob's new pick for his magazine is also the cover story of this issue and also his latest stock pick for our sister EQUITIES Special Situations Medifast (Nasdaq: MED 3.58).This stock was also his EQUITIES Special Situations pick of January 2003 at $3.85 and MED was sold for a gain of 286% in December 2003. Now this emerging growth company is bigger and better, but the stock price is actually lower because of the offshore activities of abusive secret naked short sellers.

Time to swing for another home run betting on MED's dynamic ex-Marine Brad MacDonald. Will his desire to help people with morbid obesity and weightrelated diseases like diabetes overcome the naked short sellers who are making his crusade more difficult? (See page 16) The market is there, the product works, new studies at John Hopkins are due out soon, and if the results are up to expectation, management will have more good news to promote.

Like an Indian brave Bob would like to take this moment to count coup over the major media , especially The New York Times, Business Week, The New York Post, his alma mater Forbes and The Street.com in which a major short is a big shareholder. All of them ran multiple one-sided hatchet jobs which mimicked the fear spread by abusive shorts about Pre-Paid Legal Services (NYSE: PPD 36.61), which as we have disclosed has paid to attend past conferences and bought extra issues of the magazine to distribute.

EQUITIES alone defended this profitable emerging growth stock against the secret short sellers. Now PPD has completed a sizable tender for some of its stock and declared a $0.50 cash dividend and will consider others. Our sister publication's EQUITIES Special Situations' open June 2002 buy recommendation of PPD at $17.90 was recently up 104%.

Average trading days to cover the huge short position in PPD is way over a shocking 100 days. How could supposedly smart shorts let themselves get into such a dangerous position? How can the bears exit without a disaster?

Research Frontiers (Nasdaq: REFR 6.07) led by Bob's almost double Harvard College and Harvard Business School classmate Bob Saxe recently showed a 77% loss from our July 2001 EQUITIES Special Situation recommendation. But the days to cover that short position recently exceeded 100 days too. Bob expects to count coup here too over the major media which sided with now disgraced ex-broker short Manuel Asensio and the shadowy hedge funds that followed him.

Shorts have their place exposing bad or overpriced companies, but abusive bears certainly make life harder for legitimate ones. It is like trying to kill a salmon which has made it all the way up stream before he mates.

Larry Rader
As one of Wall Street's keenest small- and mid-cap growth stock pickers over the past 40-plus years, Larry Rader of Rader Fund is not quick to part with a big winner if it still has significant upside. Thus, it should surprise no one that he will go with last year's pick QEP Company (Nasdaq: QEPC 16.09) again this year in spite of the fact it has done so well over the past year. As his December 2003 pick, it racked up a smart 51% gain in 2004 and seems headed for another big gain in 2005 having made some timely acquisitions. Rader likes QEP for the same reasons this time around, including the fact Home Depot (NYSE: HD 41.77) and Lowes Cos. (NYSE: LOW 56.98) are big customers for its specialty tools and flooring related products. Both are beneficiaries of Florida's devastating hurricanes with the large amount of rebuilding going on. QEP stock is cheap on a price/earnings basis. Rader sees earnings of $1.30-plus per share for fiscal year ending February 2005 and $1.50-plus for the year ending February 2006.

Ray Dirks
Coming off a big winner last year, Ray Dirks, now with BrookStreet Securities, likes PainCare Holdings, Inc. (Amex: PRZ 2.95 ) for his new stock. It has pain care centers in Florida, as well as technology to help people who have chronic pain and non-chronic pain. "It's a huge and growing population," Dirks says.

Favorites of the Famous - New Selections
COMPANY		DEC. 17, 2004 PRICE	MONEY MANAGER
DRYCLEAN USA	AMEX: DCU	$2.00	MAX BOWSER*
INTEGRITY MUTUAL FUNDS	IMFD.OB	0.37	GEORGE HEBERT
LIBBY INC.	NYSE: LBY	21.35	JOHN ROGERS
LIN TV CORP.	NYSE: TVL	19.10	MARIO GABELLI
LIZ CLAIBORNE	NYSE: LIZ	42.27	TOM PUTNAM
MEDIFAST INC.	NASDAQ: MED	3.58	BOB FLAHERTY*
PAINCARE HOLDINGS	AMEX: PRZ	2.95	RAY DIRKS
QEP COMPANY	NASDAQ: QEPC	16.09	LARRY RADER
SINCLAIR BROADCAST	NASDAQ: SBGI	8.90	MARIO GABELLI
UNITED ONLINE INC.	NASDAQ: UNTD	11.32	MIKE MARKOWSKI*
VIASYS HEALTHCARE	NYSE: VAS	19.35	PETER SCHLIEMANN
	S&P 500	DEC. 17, 2004 Price 1203.21	*Financial writer

The company now has 16 centers with a chiropractor and physical therapists. The centers perform minimally invasive spine surgery and orthopedic rehabilitation and most of its services are covered by insurance. "It's a promising company that recently sold stock to the public in a follow-on offering through First Albany, but not too many institutions know about it," Dirks continues. "I think it will be picked up because it could earn about $0.45 to $0.50 in '05."

Dirks' December 2003 pick, PCMall (Nasdaq: MALL 20.89) up 50% remains one of his favorites. It is one of the fastest growing companies in the online marketing of computer hardware, software, peripheral, electronics and consumer products sold to businesses, government and educational institutions, plus individuals.

Art Bonnel
Art Bonnel's last pick for our Favorites of the Famous feature was a sizzler. Cooper Companies (NYSE: COO 69.62) racked up a 49% gain year-to-year. After ten years managing the Bonnel Fund, Art has traded in the 24/7 grind of running money and anticipating and reacting to the wild gyrations of the stock market for a more family based lifestyle, spending several months in Australia for a start. Portfolio management of Bonnel Growth Fund has been taken over by San Antonio-based U.S.Global Investors Inc and the fund renamed to the Holmes Growth Fund. Global Investors' CEO, Frank Holmes paid tribute to Bonnel, saying, "Over the past decade, he (Bonnel) successfully guided the fund through one of the most unpredictable markets investors have ever seen." Art did not have a new pick right now but promised EQUITIES readers that he would not be a stranger.

John Rogers
A 1980s graduate of Princeton University and a star basketball player, Ariel Capital's, John Rogers is still playing in three-on-three basketball tournaments. He had a nifty winner with Littlefuse (Nasdaq: LFUS 37.42), ahead 37% since last December. "I am still a believer and it is a favorite of ours," he says. However, he would hold it rather than add to it, at least until the market settles down a bit.

His new shot for 2005 is Libby Inc. (NYSE: LBY 21.35 ), one of the last domestic manufacturers of glass beverage ware, tableware, and ceramic dinnerware sold primarily to institutions in the foodservice, retail, and industrial businesses. As an exporter to 75 foreign countries, Libby should stand to benefit from the drop in the U.S. Dollar versus major currencies internationally. "While the company has had some problems, including earnings disappointments, the stock reflects that and has been beaten up pretty badly," Rogers says. "We think that it is selling at a 33% discount to our market value analysis and is selling at about 11 times 2005 estimated earnings of about $1.80."

Mario Gabelli
There is something about the way Mario Gabelli, of Gabelli Funds, talks about a stock that makes you want to go out and buy it pronto. It's not so much what he says as how he says it. You know he has done his homework and you know far more often than not, he is right. His last pick, Curtiss Wright (NYSE: CW 57.25) was up 25% year-to-year, reflecting all the good news to-date.

Now Mario thinks there are better current opportunities for investors such as Lin TV Corp (NYSE: TVL 19.45) and Sinclair Broadcast Group (Nasdaq: SBGI 8.90). Both are attractive for the same reasons. They are in the broadcasting and cable television industry, significantly undervalued and potential special situation plays. Growth can come by making acquisitions or appreciation due being acquired.

Because he can't choose between them, Mario would like to recommend both this time around, something which we discourage. But what the heck, it's Christmas. He sees a value of $30 a share for Lin TV and $20 a share for Sinclair in the intermediate-term future. "Two things are going to happen," Mario explains. "I think we will go from a red light to a green light with regards to the TV stations being able to consolidate, including having more than one TV station in smaller markets. 2005 is going to be kind of a challenging environment because political advertising was so high in 2004. However, by the time the summer rolls around investors will be looking ahead to 2006 and the outlook will look exciting." And of course wise men like Mario buy before things look good and sell afterwards at a higher price when the rest catch up.

Tom Putnam
Tom Putnam, manager of FAM Value and FAM Equity Income funds, selected TCF Financial (NYSE: TCB 30.93) back in December 2003. His timely pick is ahead 22% over the year and its shares split two-for-one. Putnam remains very impressed with management's expertise to cope with all environments, including increasing interest rates, and would continue to buy the stock. TCF is a Mid-West banker focused on the needs of the middle class depositor. "They know how to allocate capital well; they manage the asset liability ratio very well," Putnam explains. He adds that rising interest rates will help them because their spreads will be greater. Also, he likes the fact management will stay within its niche.

For 2005 Putnam's favorite is Liz Claiborne (NYSE: LIZ 40.27). "It is a company we like quite a bit at this time," Putnam says confidently. "Management has grown the company by acquisition, but what we really like about it is its very experienced and disciplined management team. We are very impressed with its camaraderie. They are intelligent, articulate, focused and passionate about their business. No ego-maniacs by any stretch of the imagination - just very team oriented. Management has spent wisely on technology to enhance efficiency with what they view as a differentiator in the marketplace in terms of inventory, costs and productivity in its wholesale, retail and international operations. LIZ designs and markets branded women and men's apparel, accessories and fragrance products, available at more than 30,000 retail locations."

Max Bowser
A veteran of many years of sleuthing small micro-cap stocks in his Bowser Directory of Small Stocks, Max Bowser hopes to clean up with DRYCLEAN USA, Inc. (Amex: DCU 2.00) for his new favorite. With more than 400 franchised and licensed outlets in Florida, the Caribbean and Latin America, and a highly profitable industrial laundry, equipment, and cleaning machine distribution business, DRYCLEAN is in a position to expand its operations significantly.

Growth should accelerate primarily due to the fact that Alan I. Greenstein recently acquired a 21.5 % equity position and joined it as Executive Vice President and Chief Operating Officer with specific responsibilities in sales and marketing.

Greenstein and a partner grew a Thrifty Car Rental franchise in Florida from 1,800 vehicles to a fleet of 7,500 vehicles and revenues of $82 million between 2001 and 2004 prior to selling it to Dollar Thrifty Automotive Group, Inc. Additionally, Bowser notes, Greenstein knows the dry cleaning business, having developed a chain of retail dry cleaning and laundry stores in Florida. For its fiscal year ending June 30, 2004, DCU earned $0.08 a share.

While his pick in December 2003 of ENG Global (AMEX: ENG 1.92) shows a loss of 8%, Max would stick with it. This provider of engineering services to the petroleum, petrochemical and process industries remains attractive for its exposure to the vibrant oil and gas industry.

Favorites of the Famous - December 2003
COMPANY	EXCHANGE SYMBOL	MONEY MANAGER	DEC.18, 2003 PRICE	DEC.17, 2004 PRICE	PCT CHANGE
INTEROIL CORP.	AMEX: IOC	BOB FLAHERTY*	20.49	39.65	+94
QEP COMPANY	NYSE: QEP	LARRY RADER	10.65	16.09	+51
PCMALL	NASDAQ: MALL	RAY DIRKS	13.98	20.89	+50
COOPER COMPANIES	NYSE: COO	ART BONNEL	46.73	69.62	+49
LITTLEFUSE	NASDAQ: LFUS	JOHN ROGERS	27.25	37.42	+37
CURTISS WRIGHT	NYSE: CW	MARIO GABELLI	45.62	57.25	+25
TCF FINANCIAL**	NYSE: TCB	TOM PUTNAM	25.38	30.93	+22
ENG GLOBAL	AMEX: ENG	MAX BOWSER*	2.08	1.92	-8
CRAWFORD CO.	NASDAQ: CRDA	PETER SCHLIEMANN	7.00	6.45	-8
	S&P 500		1070.47	1203.21	+12.40
Average of 9 selections December 1, 2003 to December 17, 2004: + 34.71 %
* Financial writer ** Adjusted for a 2 for 1 stock split

Peter Schliemann
Rutabega Capital's Peter Schliemann ferrets out little gems that can some day become far more precious values. His new favorite is Viasys Healthcare (NYSE: VAS 19.35), the combination of a number of healthcare oriented companies spun off from Thermo Electron in 2001. It has many of the ingredients he looks for in winners. These include a strong balance sheet ($3.60 cash per share), a strong market share in its legacy products, new product growth potential, increased R&D, expanded marketing presence here and abroad, and managements' belief in the future as evidenced by the purchase of its shares.

"This 2004 has been one really bad year for them," Schliemann explains. A lot of things have gone wrong, including customer inventory problems and delays in some fairly significant contracts. So, while VAS will probably end up only earning around $0.55 a share in 2004, he sees earnings of about $0.82 in 2005 with better than $0.90 in 2006. "The earnings rebound, especially if the new products gain traction, make it very attractive now," he believes.

Schliemann's December 2003 recommendation, Crawford & Co. (NYSE: CRDA 6.45) is down about 8% and is still in the process of turning the corner. Recent action suggests progress is being made on that front. A new CEO is on board.

Crawford is an insurance claims adjuster for insurance companies that either don't have their own adjustment department or are overwhelmed with claims and have to call on outside support. Last fall's hurricanes have given Crawford a boost, and earnings for the quarter should reflect that. Nevertheless, Schliemann would like to see more evidence that the new CEO can turn it around enough for a meaningful recovery. Hold but watch closely.

Mike Markowski
EQUITIES regular columnist and 2003 cover subject Michael Markowski is the co-founder and director of research at StockDiagnostics.com. and editor of The OPS Newsletter. Relying on new technology by using CFFO (Cash Flow From Operations) and OPS (Operational cash flow Per Share) to predict tomorrow's winners and losers, Mike was very early in predicting trouble with Sears receivables even ahead of management.

Subsequently, he was cited as one of "50 Great Investors" by Fortune Magazine in its "Investors Guide 2004" and his 2004 stock pick at $19 for that same article was Webex Communications (Nasdaq: WEBX 24.58) recently trading for a one year gain 31%. Michael also gave Forbes.com a stock pick at $21.96 in early March 2004 of J2 Global Communications (Nasdaq: JCOM 33.72) recently up 54%.

Now what is his pick for EQUITIES? His favorite stock for 2005 is United Online Inc.(Nasdaq: UNTD 11.32), down from a 52-week high of $20.96. This internet subscription agency has borrowed $100 million to buy back a big chunk of its stock through a recent Dutch auction. Markowski believes UNTD has the cash flow to handle the transaction and grow.

George Hebert
For reasons we can't fathom, some souls chose to make their living sifting though the muddy sands of the OTC Bulletin Board and Pink Sheets trying to find the few pearls among the many oysters and other creatures of the deep. One such is ex CIA official George Hebert, the gadfly founder of Castle Holdings. No obscure ostrich farm, new windmill, Ollie North or other ex-CIA guy startup or Southern gold mine dormant since the slaves were freed escapes his gaze.

His current favorite find is a Minot, ND-based mutual fund management company, Integrity Mutual Funds (IMFD.OB $0.37) with about $400 million under management. It has had a number of setbacks, especially the death of a promising executive. But life goes on and Integrity is coming up with a growth plan and beefing up its sales power. For early stage investors who are patient and can tolerate speculative risk, Integrity Mutual Funds offers a already marginally profitable real business and recent fund acquisitions showing a desire to grow. Has Hebert found a pearl? A dive into next year's performance stock table will give us a hint.

In any event IMFD is the only OTC stock among the new selections for 2005 and in memory of our late founder "Mr. OTC" Ralph Coleman Jr. EQUITIES always tries to include at least one.

Unequaled Anywhere
In this new politically-correct, post stock market crash world where warnings often drown out what is important , we will repeat what every reader should understand anyway. All of the money men, or their firms or funds, may have relationships with the companies recommended and that editors Max Bowser, Mike Markowski and Bob Flaherty are journalists, not money men.

One final thought: So far as we can tell, the performance of this feature where the combined portfolio of the Favorites of the Famous has beaten the S&P 500 14 of the last 17 times is unequalled anywhere else in the print media in the entire world. Truly we get by with the help of our friends.

May the New Year be what you want it to be.

Reprinted with permission from
EQUITIES Magazine - Fall/Winter 2004
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