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STOCKS TO WATCH with Tom Ellison

■ National Australia Bank (NAB) avoid

BROWSING the stock lists of some of Australia's larger equity funds during the week, I noticed one manager had 9 per cent of his fund invested in National Australia Bank. Curious as to why he held any exposure at all, let alone such an overweight position, I rang him. He just muttered a few words about quality management and improved credit quality. That argument doesn't wash with me - anyone who's ever owned a pet or had children will know that the best predictor of future behaviour is past behaviour. And for more than a decade, NAB has entertained investors with a bewildering array of blunders, which may have provided good fodder for the financial pages, but have cost shareholders dearly. I'll stick to my view that Commonwealth and Westpac provide all the banking exposure most investors need.

■ Environmental Clean Technologies (ESL) watch

A FORMER university colleague, after deciding a life of academia suited him, has spent the past 20 years not so much conducting ground-breaking research as applying for grants to allow him to conduct ground-breaking research. That process will sound familiar to the directors of ESL, who seem to dedicate much time and energy to sourcing funding, through both grants and capital raisings, to process their technology which turns brown coal (extremely environmentally suspect) into something more like black coal (merely very environmentally suspect). Those efforts have been somewhat stymied by one recalcitrant investor who promised lots of capital, but hasn't delivered. In short, the risks are too high for ESL to be considered even a speculative option at this stage.

■ Undercoverwear Limited (UCW)

I GENERALLY refrain from criticising fees paid to company directors, if only because I hang on to some faint hope that I might be appointed to a board one day. But one must wonder whether directors always represent value for shareholders' money. Regis Resources, a $2.6 billion company, pays the chairman around $100,000. That's pretty fair value, given the share price has risen 100-fold in just a few years. In contrast, Undercoverwear, worth $1 million, has lost 99 per cent of its value over the same period, but the chairman and another non-executive director still get paid $100,000 each. Given the information vacuum that passed for this year's annual report, I doubt that's money well spent.

Tom Ellison is the general manager of WFG Equities