Cheap carnival cruises

The safest stocks to own today may be recession-resistant shares of companies that deal mainly with consumers and possess little Asian exposure. Derek Webb, manager of AIM Global Consumer Products fund (800-457-0630), names four such stocks that he considers timely.

CARNIVAL CORP.

(CCL, New York Stock Exchange, $31). Shares of this operator of cruise ships (Carnival Cruise Lines, Holland America Line and Windstar Cruises) are down 28% from their July high of $43. "The stock has gotten killed because investors fear that if we go into a recession, people will stop taking vacations," says Webb. Also, investors constantly worry that the company is adding too many new ships. But management, says Webb, has "done a fabulous job of managing supply and demand," and the company regularly delivers earnings in excess of analysts' expectations. Most of Carnival's customers are American, Canadian and European. According to First Call, analysts on average expect Carnival to earn $1.61 per share for the year ending November 1999, so the forward price-earnings ratio is 19. Estimated long-term earnings growth is 17% per year.

OUTDOOR SYSTEMS

(OSI, NYSE, $22) 1000,000 billboards, mainly in the 50 largest U.S. and ten largest Canadian markets. "Billboard companies have in good times and bad times been able to increase their prices," says Webb. "It's probably the best industry I've ever seen." As a result of consolidation, one operator usually dominates each market, allowing that company to boost prices without much resistance. "The business generates huge free cash flow, because there's no technological obsolescence," says Webb. These companies tend to be valued on cash flow rather than earnings. Webb expects Outdoor's cash flow to jump 22% in 1999.

PHILIP MORRIS

(MO, NYSE, $49). Although the tobacco and food giant derives 51% of sales and 42% of profits from foreign markets, most of Philip Morris's foreign exposure is to Europe, says Webb. More important, he says, the stock remains incredibly cheap, despite its strong performance recently. Basically, says Webb, the value of Philip Morris's food and international tobacco operations equal the share price, which means you get the domestic tobacco operations for free. "if you can get that business for free, even with the litigation liabilities, you have to take it." The stock sells at 14 times next year's consensus earnings estimate of $3.52 per share and yields 3.6%. Expected long-term earnings growth: 17% per year.

SAFEWAY

(SWY, NYSE, $44). The grocery industry is, by its very nature, recession-proof. Webb calls Safeway, the second-biggest grocer in the U.S., the industry's best and lowest-cost operator. Safeway leads the way through "incredible cost controls, incredible inventory controls" and by boosting sales of its more-profitable private-label brands. Safeway is also growing through acquisition. It bought Vons in 1997 and recently announced deals to buy Carr-Gottstein, an Alaskan firm, and Dominick's Supermarkets, the second-biggest chain in Chicago. Webb says Safeway is generating 60% more cash than it needs. That money can be used to buy back shares or pay off debt. The company is expected to earn $1.80 per share in 1999, with an expected long-term growth rate of 7% per year.