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One caveat: Inc. asked three hot mutual-fund and investment managers to create their own miniportfolios from this year's Inc. 100 companies, but not all their comments constitute buy recommendations. So put down that phone. When citing companies that caught their eye, they often use phrases such as "worth looking into' and "interesting to watch.' And mixed in with observations about specific companies are more general thoughts about what smart investors might look for -- and be wary of -- on a list like this one. Hedging their bets? Maybe. That said, here's what they liked.

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Stephen A. Stone
President of Cowen Family of Mutual Funds, in New York City

This year's Inc. 100 offers a lot of opportunities in high technology, biotechnology, and even the medical industry. I'd give serious consideration to Cabletron Systems, American Power Conversion, Sepracor, Ventritex, and Cisco Systems.

Cisco Systems is a company that's proven, extremely well managed, and at the top of its field. It could grow between 35% and 39% a year, based on its current performance.

Another company in the high-tech area that's done well is PictureTel (#48). But it's competing with AT&T, and unless it can find a niche, it's vulnerable. A stronger company in the industry could take it over or merge with it, although I doubt that will happen. And that's not reason enough to buy the stock.

Even though some biotech companies have been disappointing, you don't have to stay away from those stocks. A lot of biotech companies lost market value because fashionable stocks such as Amgen go down. In fact, the reason I'm focusing on biotech is that it's an area that's been slammed hard. The time to buy a stock is when nobody else wants it. Then you can buy it cheap.

The trick to picking biotech stocks is to invest in companies that actually have a working drug. If you pick a company that just has a theory, it's really no better than a crapshoot. A company that has gone through the first or second hurdles of the Food and Drug Administration approval system has a good shot at getting through the third phase. It's better to pay a little more and get a company that has a cohesive plan and a product.

There are a lot of good biotech stocks out there. Sepracor supplies materials to biotech companies. It sells reagents, enzymes, and coenzymes to companies for research.

Another interesting company is Ventritex, which makes defibrillators. No matter what happens with President Clinton's health-care plan, you're still going to have to defibrillate people when their hearts stop. Ventritex has good management, it's in a niche, and although it has formidable competition, there's room in the market for a unique product.

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Stone's Picks
Cisco Systems #11

Ventritex #22

Sepracor #77

Cabletron Systems #80

American Power Conversion #94

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Sandra K. Shrewsbury
Comanager of the Piper Jaffray Emerging Growth Fund and an associate manager of the Piper Jaffray Value Fund at Piper Capital Management, in Minneapolis

When investing in high-growth companies on this list, you want to watch for changes -- changes in a company's performance, along with its industry's growth rate, its competitive environment, and its profit margins. In all of these companies good management is also key. You need to monitor all those factors. And you want to keep your portfolio diversified by buying in different industries and multiple geographic locations.

Cisco Systems and Wellfleet Communications are both in the area of internetworking products, which connect local-area networks. We estimate there is only about 30% penetration in that particular segment. It's amazing to me that Cisco's fundamentals continue to improve and that it keeps coming through with strong quarterly results. Well-fleet is teaming up with Novell to ensure that their products work well together. That should be positive for Wellfleet, even though Novell's router product line hasn't been so strong. But certainly Novell's marketing could be a real advantage to a small company such as Wellfleet.

PictureTel, a videoconferencing company, is another company in a market with a lot of potential. There is some uncertainty about the ultimate size of that market. But videoconferencing could become a cost-effective way for companies to cut down on travel expenses and pull people together from various locations. PictureTel has done well so far, and it's really establishing itself in a leadership position.

There are a lot of opportunities in the medical area, even though a lot of investors are saying, Get me out now at any cost, because no one knows what's going to happen with President Clinton's health-care plan. The stock market hates uncertainty and reacts negatively; it will be better able to deal with medical and health-care stocks when we know what's coming.

Still, Ventritex, which sells defibrillators, is an interesting company. There are other players, but the market will grow to an estimated $1 billion to $2 billion by the end of the decade and is about $275 million right now. Ventritex, a small company, doesn't have to get a huge part of the market for investors to benefit.

SciMed Life Systems is one I'd recommend and one we have in our portfolio. But it is a company that's been hit by the uncertainty about health-care reform. There are concerns surrounding this company -- it does have some patent litigation pending with Pfizer. But it specializes in angioplasty, a less expensive alternative to open-heart surgery. And because of its increased emphasis on medical-cost containment, the company has good long-term growth potential.

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Shrewsbury's Picks
Wellfleet Communications #1

Cisco Systems #11

Ventritex #22

PictureTel #48

SciMed Life Systems #73

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Ronald E. Elijah
Portfolio manager of the Robertson Stephens Value Plus Fund at Robertson Stephens & Co., in San Francisco

I like to invest in everyday, generic businesses that sell something we all can use. I try to stay away from single-product fad companies. I also stay away from highly valued companies -- and on this list there are a lot of them -- because they're higher risk and tend to be more volatile.

There are about seven companies on the list that are involved in networking on the supply side. In such a crowded area, I try to find companies with some point of differentiation. Cisco Systems and Wellfleet Communications, for example, are in a niche area in networking -- routers.

Future Now is also an interesting company to watch. It's not highly valued and sells for 10 times trailing earnings, and it's selling for 20% of its revenues. Not even counting its acquisitions, the company has grown 30%. I also like that the company is concentrated in a niche area, specializing in service and support for UNIX and local-area networking. With the proliferation of those technologies comes problems for customers on the service side. Future Now is a company that provides something for which there is a real demand. Because of the complexity of local-area networks and the wider use of UNIX, not that many retailers have been able to keep up with the technologies.

Callaway Golf, the golf-club manufacturer, is a good growth company that's worth looking into. The risk is that it's a single-product business. But it has a low enough multiple -- less than 20 times trailing earnings. In other words, the fact that it's a single-product company is priced into the stock.

First Team Sports is another interesting company to check out; it's valued at 16 times trailing earnings.

It's a good idea to research a number of health-care, medical, and biotech stocks so that when the Clinton health plan is out, you'll be ready to buy depending on how the plan will affect each company. Profit margins for products and drugs will shift with the new plan, and that's what makes this area very risky. Because there is more emphasis now on cost containment, I'll be looking at service organizations, health-maintenance organizations, nursing homes, and discount drug companies that are already operating at low margins.

PhyCor is a good company to look at, for example. It's inexpensive for its price-to-earnings and price-to-revenues ratios. The market valuation is $100 million, trailing revenues $135 million. So it's still a reasonable valuation on the price-to-revenues ratio, and it's growing.

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Elijah's Picks
Wellfleet Communications #1

PhyCor #4

Cisco Systems #11

First Team Sports #26

Callaway Golf #41

Future Now #51


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Abby Christopher contributed to the reporting of this story.

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