Target prices

Red Hat Inc.

This cash-rich company sells and services the Linux computer operating system. Red Hat is finally showing profit and carries a market cap north of $1 billion. Sales have increased from $2 million to more than $100 million within eight years.

Duke Energy Corp.

Duke strayed from its utility roots to become a globetrotting, energy-trading disaster. Under former CEO Rick Priory, its debt ballooned to $24 billion. And net debt rates moved from 38% to 67% in 10 years. But someone can turn this debt-ridden company around. Buy on the bad news.

Lance Inc.

If trends continue, Lance will be debt-free in four years. It assumed $71 million in debt in 1999 in its purchase of Cape Cod Potato Chips. Lance’s real estate in Charlotte, its distribution system, its cash flow and its dividends are worth more than $270 million — the company’s market value. In a decent economy, its cash flow is $50 million a year.

Pharmaceutical Product Development Inc.

Pharmaceutical Product Development in Wilmington offers a broad range of research and consulting services for drug and life-science companies. PPD stock is down from its historic high of $38.40 in 2001. Earnings in 2004 are projected at $1.90 per share, up from a 2003 estimate of $1.60 per share. Revenue for 2004 is projected at approximately $800 million. The company’s balance sheet is extremely strong, with equity of $491 million versus long-term debt of only $6.5 million. At approximately 14 times next year’s earnings, this has excellent potential.

Coca-Cola Bottling Company Consolidated

Charlotte-based Coca-Cola Bottling Consolidated is the second-largest Coca-Cola bottler in the United States. Earnings for this bottler have suffered in 2003, largely due to poor weather in its operating areas. Its 2004 earnings are estimated to rebound to $2.85 per share, up 18% from the 2003 estimate. It generates significant levels of cash, which is used for its healthy dividend of 2.1% and deleveraging of the balance sheet. The Coca-Cola Co. owns about 37.5% of the company’s shares.

Goodrich Corp.

Goodrich supplies parts and services to the commercial-, regional-, business- and general-aviation markets. Its earnings peaked in 1999 at $3.24 per share. For 2004, earnings are expected at around $1.50. However, the stock should start to reflect a recovery in the aerospace markets over the coming year. In the meantime, the company pays a dividend of just over 3%, so investors get paid while waiting for better times.

Laboratory Corporation of America Holdings Inc.

Laboratory Corporation is a steady, cash-generating health-care business with a potential long-term upside driven by new genetics research. LabCorp has opportunities to pick up market share from hospital-based labs or via small acquisitions, but the base business can grow sales volumes at mid-single digits. Since LabCorp trades at only 12 times 2004 earnings forecasts, there is valuation upside.

Pharmaceutical Product Development Inc.

Since its January 1996 initial public offering, the stock has delivered 11% compound returns, beating the S&P 500. Earnings in the past five years have grown even faster — more than 30% per year. Don’t expect that to continue now that PPD is a $650 million company, but the need for drug companies to bring new compounds to market has never been greater. PPD’s third quarter showed record new business wins, so expectations of profit gains above 15% in 2004 seem reasonable, as does the 15 price-earnings multiple on those forecasts.

Cooperative Bankshares Inc.

Cooperative Bankshares has 19 branches in an attractive part of the state — from Corolla to Wilmington. That helps fuel healthy earnings growth — 16% in the first half of 2003, following 60% gains in 2002 and 42% in 2001. Profitability ratios are above the state’s community-bank averages. And asset quality, as measured by nonperforming loans, is superior. The dividend is modest, but at only a 10% payout ratio, there’s room for an increase.

Duke Energy Corp.

Duke’s new management supports the current dividend, which was better than 6% in late 2003. Recent tax changes should attract investors to companies with high dividend yields. Duke’s stock is trading well below its historic high and offers a favorable risk/ reward opportunity. Energy companies continue to suffer from a crisis in confidence, and Duke is no exception. Investors should be patient.

RF Micro Devices Inc.

RF Micro Devices manufactures semiconductor parts used in wireless-communication products such as cell phones and cable-television modems. Technology stocks had a mild recovery in 2003. RF Micro Devices stock was part of it, moving approximately 20%. Analysts expect a more than 20% increase in semiconductor sales in 2004. RF Micro Devices is positioned to capture its share of these increased sales.

Cree Inc.

Cree develops and makes semiconductor materials and devices based on silicon carbide, gallium nitride, silicon and related compounds. Its light-emitting diodes can be found in a variety of products, including automobile dashboards and traffic signals. It was Business North Carolina’s High-Tech Company of the Year in 2003 for “focusing on innovation, execution and the bottom line.” An intrafamily lawsuit was recently thrown out of court. With the legal issues resolved, the stock should trade more in line with its peer group.

BB&T Corp.

BB&T is quietly becoming one of the country’s best regional banks. It is the best acquirer in the banking industry. The First Virginia Bank acquisition, its largest yet, took it from fifth to second in that state. It’s now the 11th-largest bank in the country and 10th-largest insurance-agency network. BB&T shares have a dividend yield of 3.45%, and it has increased its dividend at a 16% rate for the last 10 years.

Krispy Kreme Doughnuts Inc.

There is controversy about this stock’s valuation, and the critics might be right — if Krispy Kreme never opened another store. It has 315. In 1992, Starbucks had 300 stores; today it has 7,225. Then, the critics were saying the same things about Starbucks’ valuation as they are saying now about Krispy Kreme’s. Since going public, Krispy Kreme has beaten Wall Street’s earnings estimate every time.

Inspire Pharmaceuticals Inc.

The headlines about North Carolina’s troubled textile, furniture and tobacco industries have obscured the state’s thriving biotechnology industry. Chapel Hill-based Inspire develops drugs to treat respiratory and ophthalmic diseases. The FDA granted priority review to Diquafosol, its treatment for dry-eye disease. It has a number of other initiatives under development, as well.