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Rebuilding effort may boost Watsco

Steve Halpern regularly reviews more than 400 stock market newsletters and services, choosing what he believes to be the most interesting or informed recommendations for inclusion in this column and his own newsletter, the Dick Davis Digest. For subscription information or further details call (800) 654-1514.

Watsco

Headquarters: Miami

ASE (Symbol: WSOA)

52-week range: $7-$12.50

Friday's close: $11.12{

"Watsco is a leading maker of residential central air conditioners. The firm holds a 35 percent market share in Dade County; as a result, it could benefit significantly from the rebuilding effort following Hurricane Andrew. An estimated 80,000 homes were destroyed by the storm _ and about 98 percent of those had central air.

"With its strong market share in the Miami area, the company, in theory, could pick up business from about 28,000 new homes. In addition, many homes were partially damaged but will need new central air conditioners due to salt water damage and other factors. Further, many businesses _ particularly where central air units were on the roof _ will need to replace their air units.

"While it's still difficult to estimate the timing and extent of the rebuilding process, it's possible that Watsco could generate about $25-million to $30-million in incremental revenues from new residential and commercial construction over the next two years. Based on current levels of profitability, these revenues could translate into incremental earnings of 25 to 30 cents per share over the next two years. We rate the stock a buy."

Harry Katica

Raymond James & Associates

Nutmeg Industries

Headquarters: Tampa

NYSE (Symbol: NTM)

52-week range: $5.25-$17.50

Friday's close: $10.87{

"Nutmeg is a leading maker of spectator sportswear. The company holds licenses granted by Major League Baseball, the National Basketball Association, the National Football League and the National Hockey League. It also holds licenses to produce sportswear for most major American colleges. The company produces high-quality garments such as sweat shirts, T-shirts, and jackets.

"Fiscal 1992, which ended in January, was a very successful year. The company, via an acquisition, entered the sports-cap market. Nutmeg also added the ABC Sports product line, including Monday Night Football, College Football and Wide World of Sports. The company also obtained the rights to the British Open label; shipments of golf apparel should begin next year.

"Meanwhile, sales to international buyers increased fivefold. Nutmeg should continue to see rapid growth in Europe and Canada. .

.

. The company has reported nine consecutive quarters of record sales and earnings.

"Profit margins are expanding, and this trend should continue. We expect sales to rise 30 percent and net income to increase 72 percent for the year ending next January. Earnings per share estimates, however, will not reflect this strong growth, due to additional shares outstanding from a secondary offering in November 1991.

"Meanwhile, the stock has fallen over 50 percent since April. We rate Nutmeg a buy, with a 12- to 18-month price target of 19."

Louie Nejedlo

Equity Analyst

Green Bay, Wis.

Office Depot

Headquarters: Delray Beach

NYSE (Symbol: ODP)

52-week range: $15.25-$29.62{

Friday's close: $28.25

"We continue to aggressively recommend Office Depot, our favorite emerging-growth retailer. The company is the largest office products superstore chain in the nation, with revenues estimated to reach $1.7-billion this year.

"The company pioneered the office supply superstore concept. The firm can price its merchandise 30 to 50 percent below traditional office suppliers while generating a store-level return on investment of more than 50 percent. The company has emerged from the industry shakeout with more than twice the revenues and profits of its nearest competitor.

"The company could become the fastest-growing multibillion-dollar retailer over the next three years. .

.

. We look for the company to earn 62 cents per share in 1992 and 85 cents in 1993, up from per-share earnings of 27 cents in 1991. The stock is a short- and long-term buy."

Dan Wewer

Robinson-Humphrey

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