Kunath Finishes First Among Pros In Times' Stock-Picking Contest

Jan 1, 1998

Greg Heberlein

Seattle Times Business Reporter

It was late in 1985. The Dow Jones industrial average had lost 4 percent in 1984, but was recovering nicely. Still, the good marketer would be looking for ways to keep interest stirred up.

The telephone rang. A well-known player in the local investment community was on the horn.

"Why not have a contest?" he said.

And so it was, so early in this bull market, that Mike Kunath persuaded The Seattle Times to collect the stock selections of five Seattle-area Wall Street professionals, keep tabs on them through the year, then crown a winner.

Aptly, Kunath won the first contest. But he suffered a dry spell not to be broken until now. Kunath's five picks for 1997, made in early December 1996, rose 38 percent, sending his portfolio to the top of the 12th annual event.

Kunath is a principal of the company he co-founded, Kunath Karren Rinne & Atkin, in 1983. The Seattle company invests nearly a half-billion dollars for clients out of its Key Tower offices.

Kunath's local roots are strongly fixed. A graduate of Seattle University, he worked for the investment firms of Herron Northwest, Piper Jaffray and the Bache Halsey predecessor of Prudential Securities. He also was a founder of Sirach Partners, another top local investment company.

Kunath has presided over the Seattle U. Alumni Association, served as an SU regent, and has been active in nonprofit groups, including the YWCA, Fred Hutchinson Cancer Research Center and the Leukemia Society of America. Chances are, much of Seattle has bought fund-raising chestnuts from him or his minions in downtown Seattle during the holidays.

Kunath's triumph in this year's contest came against a field that has been unchanged for three years. And it will remain unchanged for 1998, as all five pros consented to another round. It is interesting to note that a new champion has been declared in each of the past four years: Bill Whitlow for 1994, Terry Douglas for 1995, Bob McNulty for 1996 and now Kunath. That puts the pressure on Les Childress, who has had a strong showing with two seconds and a third in the past four years.

Each analyst selects five stocks they cannot change for one full year. Appreciation is all that matters. Cash dividends don't count.

Here's how the four others finished in 1997: Childress of Bainbridge Island's Childress Investment Research 26 percent, Piper Jaffray's Douglas 19 percent, Safeco's Bill Whitlow, a five-time winner, 6 percent, and defending champion McNulty of Bellevue's Coldstream Capital minus 17 percent.

Here's how the individual stock picks did in 1997:

Kunath (+38 percent): Labor Ready, 114 percent; Esterline Technologies, 38 percent; Albertson's, 33 percent; Oregon Metallurgical, 4 percent; Flow International, 3 percent.

Childress (+26 percent): Expeditors International, 67 percent; Microsoft, 56 percent; Starbucks, 34 percent; TJ International, 6 percent; Southern Pacific Funding, -37 percent.

Douglas (+19 percent): Microsoft, 56 percent; Washington Mutual, 47 percent; Starbucks, 34 percent; Boeing, -8 percent; Nike, -35 percent.

Whitlow (+6 percent): Starbucks, 34 percent; Percon, 33 percent; Schnitzer Steel, 10 percent; Wall Data, -10 percent; Southern Pacific Funding, -37 percent.

McNulty (-17 percent): NeoRx, 36 percent; CFI ProServices, -14 percent; Protocol Systems, -23 percent; Rogue Wave Software, -30 percent; Applied Microsystems, -55 percent.

The year had its ups and downs, and despite some late turmoil, gains outweighed the losses. For 1998, the five pros sound much like they did for 1997: cautiously optimistic.

Kunath repeatedly declined the opportunity to declare 1998 a tough market year. But look at his body language:

"I think for 1998, sector selection is more important than issue selection," he said. "Within sectors, knowing management expertise will be fundamental to making money."

Kunath also said the second half of '98 will be more conducive to making money than the first half. For his stock picks, Kunath said he went for smaller-cap issues. (Market capitalization, or market value, is determined by multiplying number of shares outstanding times the price per share).

He selected Seattle FilmWorks as a leader in consumer technology, Microvision in medical tech, Wall Data in software tech, Applied Voice Technology in telephonic tech and Emeritus for the "technology" of aging.

Emeritus, a Seattle company, operates assisted-living units. Seattle FilmWorks is a film developer. Microvision makes goggles for direct-to-retina imaging. Wall Data makes software related to networking computers. Active Voice makes call-processing systems for personal computers.

Douglas said she'd settle for almost any gain in 1998.

"I actually think if we do 10 percent this year, it will be a total victory," she said. Not entirely tongue-in-cheek, she added, "If I had my pleasure, I'd choose a bond."

Douglas chose First Bank Corp., a Lewiston, Idaho, banking company; Starbucks, the Seattle-based coffee king; Microsoft, the Redmond-based software titan; Seattle's Immunex, a growing pharmaceutical developer; and Costco, the region's largest retailer.

Douglas was compelled to go with Microsoft, she said, "because you can't bet against Bill." By noticing the crowds in Costco's parking lot, the choice of that Issaquah company becomes clear. Even a recession would be hard-pressed to quell the nation's addiction to caffeine, Douglas suggested. First Bank is a top pick for those chasing the undervalued, she said, and Immunex is her most volatile choice, dependent on good results for its new arthritis drug.

The Asian situation will affect the U.S., Childress said. The silver lining is that interest rates should come down, which well help keep the domestic economy on an even keel. Somewhat like Douglas, Childress opted for quality, larger stocks with one exception: Portland's Gardenburger, the maker of meatless products.

Childress selected Starbucks as the "raging bull," likely to keep on growing because there are so many areas where it could grow. Even a slightly improved year for Microsoft would be a gigantic one for almost anyone else, Childress said. Assuming the consolidation of QFC and Fred Meyer goes swimmingly, as Childress expects, Fred Meyer could enjoy a mighty year. Expeditors International, a Seattle freight forwarder, has been unfairly tainted by the Asian brush. As mainly an importer, it could do quite well.

Whitlow, with Pacific Crest Securities a year ago, now is the portfolio manager of Safeco Northwest Fund in Seattle. Whitlow eschews the role of overall economic seer. But the theme of his choices was clear: rebound candidates, stocks that have been knocked down to better values.

A longtime Boeing expert, Whitlow included Boeing, whose largely self-imposed production snarls gave it a year to forget. Expeditors got the nod, mainly because its larger segment of imports will benefit from the Asian weakness. Fundamentals don't seem to account for the weakness in Eagle Hardware & Garden stock, and Eagle has done well in head-to-head confrontations with Home Depot. Sequent Computer Systems makes powerful computers. The Beaverton, Ore., company has a new product that could ignite 1998 results. Physio-Control has been thrashed this year. But with a new defibrillator line, the Redmond company could prosper in the next 12 months.

To expect a fourth straight annual double-digit increase in stock prices strains credulity, if not history, McNulty said. Nonetheless, he doesn't expect catastrophe, just more modest returns.

McNulty concentrated on beat-up Northwest stocks that have the inner strength to do better. Thus, Eagle Hardware anchored his quintet. "What I like best is it's a good shopping experience."

NeoRx is close to commercializing some of its pharmaceuticals. The Seattle company isn't expected to go to market with any in 1998, but it should make progress. Seattle's RealNetworks, which makes systems for moving video and audio across the Internet, has good genes: a founder from Microsoft, the other from DreamWorks. Innova, also Seattle-based, makes wireless radios to enhance cellular systems. It can only get better for Physio-Control, McNulty said.

Greg Heberlein's phone message number is 206-464-2267. His e-mail address is: gheb-new@seatimes.com

--------------------------------------------- Professionals make their stock picks for 1998 ---------------------------------------------

-------------------------------------------------------------------. MIKE KUNATH, Kunath Karren Rinne Atkin -------------------------------------------------------------------. Company : : : : :

: Symbol: Business : CEO : '96 high-low :'96 last - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -. Applied Voice Tech. : : : :

: AVTC : Phone sftwr : Richard : 32.50-11.375 : 24.250:

: : : LaPorte : : : - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -. Emeritus : : : : :

: ESC : Sr. housing : Daniel Baty : 16.75-10.625 : 13.375: - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -. Microvision : : : : :

: MVIS : Direct image : Richard : 19.25-3.375 : 13.500:

: : : Rutkowski : : : - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -. Seattle FilmWorks : : : :

: FOTO : Developing : G. : 14.563-8.50 : 10.875:

: : : Christophersen: : : - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -. Wall Data : : : : :

: WALL : Software : John Wall : 29.125-13.50 : 14.000: - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -.

-------------------------------------------------------------------. LES CHILDRESS, Childress Investment Research -------------------------------------------------------------------. Company : : : : :

: Symbol: Business : CEO : '96 high-low :'96 last - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -. Expeditors Int. : : : :

: EXPD : Freight fwrd.: Peter Rose : 48.75-19.75 : 38.000: - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -. Fred Meyer : : : : :

: FMY : Retail/food : Robert Miller : 37.00-16.188 : 37.000: - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -. Gardenburger : : : : :

: GBUR : Meatless food: Lyle Hubbard : 12.00-6.00 : 8.500 : - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -. Microsoft : : : : :

: MSFT : Software : Bill Gates : 150.75-76.375:138.000: - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -. Starbucks : : : : :

: SBUX : Coffee : Howard Schultz: 44.75-26.125 : 39.000: - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -.

-------------------------------------------------------------------. TERRY DOUGLAS, Piper Jaffray -------------------------------------------------------------------. Company : : : : :

: Symbol: Business : CEO : '96 high-low :'96 last - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -. Costco : : : : :

: COST : Retail/food : Jim Sinegal : 45.063-23.375: 42.500: - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -. FirstBank : : : : :

: FBNW : Ida. bank : Clyde Conklin : 19.125-15.25 : 18.125: - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -. Immunex : : : : :

: IMNX : Pharmaceut. : Ed Fritzky : 80.375-14.50 : 52.750 - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -. Microsoft : : : : :

: MSFT : Software : Bill Gates : 150.75-76.375:138.000: - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -. Starbucks : : : : :

: SBUX : Coffee : Howard Schultz: 44.75-26.125 : 39.000: - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -.

-------------------------------------------------------------------. BILL WHITLOW, Safeco -------------------------------------------------------------------. Company : : : : :

: Symbol: Business : CEO : '96 high-low :'96 last - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -. Boeing : : : : :

: BA : Aerospace : Phil Condit : 60.50-43.00 : 50.750: - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -. Eagle Hardware : : : :

: EAGL : Bldg. : Richard Takata: 26.25-15.25 : 18.250:

: : supplies : : : : - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -. Expeditors Int. : : : :

: EXPD : Freight fwrd.: Peter Rose : 48.75-19.75 : 38.000: - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -. Physio-Control Int. : : : :

: PHYS : Medical Instr: Richard Martin: 23.50-11.50 : 15.500: - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -. Sequent Computer : : : :

: SQNT : Computers : Karl Powell Jr: 31.25-14.50 : 21.500: - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -.

-------------------------------------------------------------------. BOB McNULTY, Coldstream Capital -------------------------------------------------------------------. Company : : : : :

: Symbol: Business : CEO : '96 high-low :'96 last - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -. Eagle Hardware : : : :

: EAGL : Bldg. : Richard Takata: 26.25-15.25 : 18.250:

: : supplies : : : : - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -. Innova : : : : :

: INVA : Wireless equp: J.-Francois : 29.50-13.00 : 13.500:

: : : Grenon : : : - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -. NeoRx : : : : :

: NERX : Pharmaceut. : Ron Tarrant : 10.875-6.50 : 9.500 : - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -. Physio-Control Int. : : : :

: PHYS : Medical Instr: Richard Martin: 23.50-11.50 : 15.500: - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -. RealNetworks : : : : :

: RNWK : Software : Robert Glaser : 19.375-14.875: 17.250: - - -:- - - -:- - - - - - - : - - - - - - - : - - - - - - -:- - - -.

Source: Seattle Times. Bloomberg Business News.