Becalmed Wall Street looks for a breeze
In a sultry August sun, nothing moves. At least nothing moves quickly. Any zip in your step is sapped within moments as you leave the refrigerated air of your office or home.
Investors, it seems, are no less immune to this lethargy.
The stock market of late has made a few flaccid attempts to rise above the dulling heat, but with little success. The Dow Jones industrial average fell xx.xx points last week, closing at 1,xxx.xx.
The problem is that the investment climate is saturated with uncertainty. An economy still caught in the doldrums has traders fidgeting about predictions of a strong second half. Many hoped the gust of economic reports released last week would clear the air. It didn't.
And until we get some confirmation of an economic upturn, many analysts expect the stock market to drift or slip lower over the next month or so.
But hold on to your hats. Six months from now we should be in business. Three money managers -- who expect a refreshing economic breeze by year-end -- were asked to pick 10 stocks to ride out the next 12 months.
Be patient, advises John D. Connolly, head investment-strategy honcho at Dean Witter Reynolds. ``The economy is going to strengthen. Maybe not in the third quarter, but certainly by the fourth quarter.''
He counsels that investors should not be lured back into interest-sensitive stocks. As the economy remains weak, talk of lower interest rates has resurfaced. Utility issues this past week showed signs of recovery. But Mr. Connolly says, ``Use any strength in interest-sensitive stocks as a way to get out.''
Then which 10 stocks should one consider?
Connolly tags technology companies as primary beneficiaries of an economic upturn. He picks AMP, a manufacturer of electrical connectors used in computers, appliances, etc., and Avnet, a distributor of semiconductors and electronic parts. He also favors Tandy (Radio Shack) as a technology-consumer cross. ``They've turned the corner in their computer business with the IBM-clone strategy,'' he says. And Big Blue gets tossed into the ring, since ``nothing will work unless IBM does well.''
In the basic-industry sector, he likes papermaker Union Camp and Pall, a company making filtration systems -- a specialty chemical play, Connolly says.
Among consumer-goods issues, Dean Witter is targeting companies with new or proprietary products, or both. That's why Connolly favors Tambrands, which he says is coming out with a kit for ovulation testing, and other new products. Polaroid garners interest since it plans to introduce a new camera and film next year that may rival the quality of 35 mm.
To top off his top-10 list, Connolly chooses specialty retailer Dayton-Hudson (``it looks cheap now'') and Southern New England Telephone.
Robert Nurock, the father of PBS's ``Wall Street Week'' elves, follows a roughly similar economic scenario. The Paoli, Pa., author of the Astute Investor newsletter describes most of his top 10 picks as ``less obvious ways to benefit from a rebirth in technology growth, with some orientation to capital goods.''
His technology pool includes Continental Information Systems, a lessor of IBM computer equipment; Network Systems, a leading producer of data processing systems for connecting computers of all sizes; and Sterling Software, a growing computer software company with a recent major sale to General Motors.
Mr. Nurock's basic-industry plays peg Measurex, a maker of process controls and specialty manufacturing equipment, and Millipore, a leading producer of filtration processes -- ``a low-tech play'' on biotechnology.
He also selects two companies benefiting from increased defense outlays: Wedtech, one of two suppliers of -- get this -- pontoons for the Navy; apparently demand for pontoons for quick bridge-building has risen with increased emphasis on rapid-deployment forces; and Whitehall, a small supplier of defense electronics.
Nurock rounds off his list with RCA, in the midst of major restructuring; Superior Surgical, a supplier of hospital gowns and professional uniforms; and Wendy's International (``the most aggressive marketing and highest returns'' in the fast-food industry).
Investment analyst Abby J. Cohen of Drexel Burnham Lambert says, ``It's too soon to start buying heavily in stocks of capital-goods companies.''
Among her 10 picks are several restructuring plays: Ralston Purina, Times Mirror, and Cooper Industries. Ralston Purina has pushed return on earnings to ``very high levels by consolidating unprofitable operations and buying back stock,'' Mrs. Cohen says.
She likes Coca-Cola as a growth company benefiting WALL ST.20WALL ST.18 from the dollar's decline. In the financial sector, kudos goes to a profitable Ohio bank, National City, and Travelers insurance, as well as the Student Loan Marketing Association (Sallie Mae).
Commodity plays are rare these days, but Cohen likes Phelps Dodge. This big copper processor is still making money with copper prices at levels that are hurting most processors. ``If copper prices go up even modestly Phelps will do well.'' And Cohen completes her 10 choices with Burroughs, which is introducing a new mainframe computer that should give IBM trouble, and a cash-rich oil company, Royal Dutch Petroleum. Chart: Interest Rates. *Yields; Source: Bank of Boston.
Percent Prime rate 9.5 Discount rate 7.5 Federal funds 8.13 3-mo. Treasury bills 7.10 6-mo. Treasury bills 7.30 7-yr. Treasury notes 10.10* 30-yr. Treasury bonds 10.53*