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A Stock Potpourri: Winners and Losers

By Guy Halverson / May 6, 1991



NEW YORK

AMERICAN'S have a love affair with ``winners'' and ``losers'' - perhaps because of their affinity for sports. And popular Wall Street stock indexes, such as the Standard & Poor's 500, seek to identify economic sectors that are winners or losers in terms of market performance. But such listings don't really point to future performance.

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Insurance: upturn seen for underwriting

``Very often one quarter's loser is another quarter's winner,'' says Arnold Kaufman, vice president and editor of S&P's Outlook, a weekly market report. Cases in point: The insurance industry, entertainment industry, and auto industry. For the month of April, the insurance, entertainment, and auto sectors came in among the bottom third of the 87 industry groups that make up the S&P 500. Insurance brokers, alas, were dead last. The carmakers came in 80th; and life insurers, property/casualty insurers, an d entertainment companies didn't do much better.

Insurers have suffered from negative perceptions about bad real estate loans, vulnerability to defaults, and questions about the quality of their underlying assets, since many insurers hold substantial numbers of junk bonds, Mr. Kaufman says. Meanwhile, auto stocks have been hit by the sharp fall-off in consumer spending, he says. And entertainment stocks as a group, he says, can look bad because of the poor performance of just one prominent company. It is important to look at individual companies and t heir long-range potentials, Kaufman says.

Analysts for Donaldson, Lufkin & Jenrette say many insurance stocks remain attractive for the long haul. They say that over the next 36 months there will be a significant upturn in underwriting, which should allow earnings for better companies to increase by 50 percent or more. Companies recommended include American International Group, AON Corporation, and General Re.

Entertainment: also poised for comeback

The S&P 500 entertainment sector fell during April. But the list was made up of only three companies: Disney, King World, which distributes a number of popular TV shows, and Paramount Communications. (A fourth stock, MCA Inc., was taken over by Matsushita.)

No wonder the group looked bad on paper, says Christopher Dixon, an entertainment analyst with Kidder, Peabody & Co. Paramount's worst performance always comes early in the year, because of its publishing ventures, he says. Disney had attendance problems at its theme parks, plus a string of weak movies. But Mr. Dixon says the entertainment sector is well-positioned to out-perform the overall market. He very much likes Time-Warner, which he calls ``highly diversified'' in films, publishing, and music. It will release ``Robin Hood, Prince of Thieves,'' later this year, starring Kevin Costner, which Dixon believes will be a smash hit. Long-term, Dixon likes Paramount and Disney.

Autos: no solace in US, overseas markets

The United States auto industry has some real problems, says Arvid Jouppi, an industry analyst in Grosse Point, Mich. Start with two back-to-back quarters of substantial red ink. Mr. Jouppi sees no real recovery until the 4th quarter. Total car and truck sales will be in the 13.3 million range, well below the more than 14 million units sold last year. But Jouppi sees glimmers of hope: ``There's been a pickup in sales of heavy duty trucks, which suggests a betterment in the economy.'' And ``sales o f recreational vehicles are up slightly.''

Overseas sales are not currently bolstering Detroit much, says a car analyst for Donaldson, Lufkin & Jenrette. Granted, hefty German sales are helping General Motors Corporation. But GM is hurting in Brazil, another important overseas market, where there is a wage/price freeze. Ford Motor Company is being hurt in its big British market. Donaldson, Lufkin & Jenrette sees no recovery for Detroit until later this year.