Collectively, the 10 largest public companies based in the state are an old bunch, most having been in business more than 100 years and one — Lorillard Inc. — dating back to the 18th century. But, as their shares show, they’re spry, with six of them outperforming the Standard & Poor’s 500 index over the last five years, something fewer than 15% of U.S. large-cap mutual funds can claim. The two hottest — Triad apparel makers VF Corp. and Hanesbrands Inc. — saw their stock prices soar fivefold since 2009.
While economic growth is picking up, prospects for the 10 companies tend to be muted, says Bobby Edgerton, co-founder of Raleigh-based Capital Investment Cos. That’s because they’ve done so well. Stock-market analysts are notoriously bullish, but only one of the big 10 — tech favorite Red Hat Inc., the baby of the bunch, started in 1993 — is rated a buy by more than 75% of the experts. It’s the one Edgerton likes least because he fears it’s overvalued. A contrarian who prefers out-of-favor shares of cash-rich companies, he says investors should focus on individual stocks rather than market trends. “People who think they know what the overall stock market will do are the same ones who thought Carolina would whip State in football this year. [The Wolfpack won 35-7.] Right now, oil has everybody pretty excited because lower oil prices tend to be fantastic for the stock market. But that can all change very quickly.”
A longtime member of our annual panel of stock pickers, Edgerton considers Bank of America Corp. the most promising of the bunch. That’s not surprising, coming from him, since it has done the worst of the 10 companies during the five-year period, trading at about $17.50 in early December. “I think it’s a $30 or $40 stock, because the management has had their nose to the grindstone and done a pretty good job.” But don’t bet the farm. “They still have too much debt, and banking is just too complex. Give me the Amazons and Googles and other tech companies that don’t face so much regulation.”
Don Olmstead, president of Novare Capital Management LLC in Charlotte, shares Edgerton’s enthusiasm for BofA, but he’s even more optimistic about another of North Carolina’s highest flyers: Low oil prices and solid economic growth, he says, should boost VF shares higher than the 6% to 8% growth he forecasts for the stock market in 2015. “VF has become a global company with the ability to acquire a brand and then put a lot of marketing behind it to really power increased sales. North Face is a fantastic example — it seems like every kid nowadays wants a North Face jacket.”
— David Mildenberg
