What is the outlook for investments in 1983? In a series of interviews, four investment advisers or market analysts tell what they think the investment climate is likely to be and how they would invest.
Without exception, they predicted a dull but improving economy. By the time the first presidential primary rolls around in New Hampshire in 1984, however, the kinks should be worked out of ''Reaganomics'' and corporate profits on the upswing. The advisers agree that finding the right stocks to invest in until then will be the challenge for '83. Victor Melone
Victor Melone, chief investment officer at Manufacturers Hanover Trust Company, which manages $18 billion in its trust department, was bullish on the bond market through most of 1982. Although he concedes that bonds ''will not be as good as the past 12 months,'' he still believes investors can make money on them in '83, with buyers able to chalk up a return of 20 percent-plus at some point in the year. ''That's not too shabby,'' he said.
Behind Mr. Melone's optimism on bonds is his belief that interest rates will continue to fall ''in an uneven pattern.'' Long-term Treasury bonds currently yielding 103/8 percent will be close to 9 percent by the end of the year, he forecasts.
Like the bond market, the stock market will rise unevenly. As a whole, Mr. Melone doesn't expect the market to rise ''materially higher'' than it is today. But he said that ''some industries and some companies will do very well.'' Through most of the year he expects the market, as measured by the Standard & Poor's index or the Dow Jones industrial average, to be only 10 percent higher. By the end of the year, however, he predicts the market will ''build.'' Since he expects the market to be highly selective, he said, ''the analysts will earn their keep.''
Mr. Melone believes the economic recovery will be sluggish, so he does not expect the basic industries to participate in the market upturn. He says investors in steel and copper stocks - which rose sharply at year-end - will be disappointed, since the companies are at far from profitable levels. Furthermore , he noted, ''the steel industry is saddled with continued high operating costs and a labor problem that will not go away.''
The auto industry, on the other hand, should benefit from lower interest rates and could have a pretty good year. This should help the tire and rubber companies and the aluminum producers.
Because he is not enthusiastic about the stock market, Mr. Melone would invest 50 percent of his capital in bonds, on which he expects the return to be higher than in stocks.
For the 50 percent invested in stocks, he likes the auto companies, which have the most to gain in any recovery. Although some investors have speculated on Chrysler Corporation, he would pick Ford and General Motors or one of the replacement parts companies such as Genuine Auto Parts. He also expects health care stocks to continue to perform well and would continue to buy them even though they're no longer cheap.
In the technology area, he likes some of the computer companies, but he prefers the users of the new technology. Companies like EDS and Automatic Data Processing will benefit from the bigger, faster machines being developed by the computer companies. He would also buy Texas Instruments, even though it is a mature company, noting that it has done some ''nifty things.'' He notes with Texas Instruments or AMP Inc., investors can buy companies in high technology that could also benefit when the economy bounces back, as they sell a lot to the auto and construction companies.
In addition, Mr. Melone looks favorably on some of the transportation companies, including railroads and airlines. He says the rails will participate in the economic recovery and investors have an exposure to diversified resources , as many of the lines own their own coal or mineral resources. Robert Gintel
Robert Gintel, head of the $62 million Gintel Fund and Gintel & Co., a brokerage house, thinks it is time to be 100 percent invested in stocks.
''I suspect for some industries, the worm has turned,'' he said, adding that an ''early and fragile'' business recovery seems to be developing. ''One company I talked to said its (orders) were up 2 percent for January - the first sign the company has seen of any upturn,'' he said. He also sees signs the residential housing market and auto industries have begun to rebound, propelled by lower interest rates.
Mr. Gintel believes 1983 should be ''a transitional year for farm equipment, housing, and autos.'' If it proves to be a good year, 1984 should be a banner year, he said, ''which should pay off handsomely for those companies who tightened their belts and learned to live leanly.
''I suspect we should believe in the upturn,'' he said, ''based on the theory that lower interest rates will take hold in many industries. Besides, there has been a massive inventory liquidation and there is sizable pent-up demand.'' The recovery might be slower and longer than investors are accustomed to, but he said he believes ''this would be good.'' Mr. Gintel feels the recession has caused substantial structural damage to the US economy. ''We are not the robust power we were,'' he commented.
Mr. Gintel, who is known as a good stock picker, has a handful of favorites for 1983. He has maintained a large position in H.H. Robertson, a Pittsburgh-based manufacturer involved in nonresidential construction. And, mainly because the company's stock has barely budged during the initial upward thrust in the market, he favors it for purchase. ''The company is cheap compared with what its earnings are going to do in 1983,'' he said, adding, ''I think investors have discounted the near-term downturn in the company's earnings.''
He also looks for turnaround situations. For example, he likes Hercules Inc., a chemical company, whose management has streamlined its operations and lowered its break-even point. Once the economy begins to heat up, he reasons, Hercules will get stronger.
Another turnaround situation is Tampax Inc., a toiletries company which Mr. Gintel believes has been revitalized by new management. A new president and chief executive officer, Edwin Shutt, is introducing new products and more modern management techniques to it. ''The company had been managed ultraconservatively,'' he commented, ''and now I think new management will be trying to shake things up.''
He also likes Tacoma Boat Building, which makes patrol boats for the Navy and is taking part in a project for disposing of garbage at sea. The company recently had a stock split.
On the speculative side, Mr. Gintel says he likes Blocker Energy, which is selling at about $3 a share. It had tried to get into the deep oil and gas drilling business, which turned out to be a mistake and Blocker is no longer in the business, Mr. Gintel says. This year it should have a positive cash flow. A major part of the company's oil rigs are now out on long-term leases, which could help. But Gintel warns that the company could still face bankruptcy - noting it is highly speculative at this point.
Another speculative favorite is Taco Viva, which runs Mexican fast-food restaurants in Florida. Taco Viva was a new issue this year, originally offered at $9 a share. Currently it is selling at about $10.50. Walter Peters
The economy will remain stagnant, maintains Walter Peters, the head of the Unicorn Group, a money management concern that runs about $1 billion in US and overseas funds. But he says ''stagflation'' will be ''less damaging than the past three years.'' In the United States, Unicorn is projecting an increase in the gross national product of between 2.5 and 3 percent this year. The prime interest rate, averaged out, should be about 10 percent.
Mr. Peters says areas of growth will be housing, autos, and defense. Corporate profits as a whole should be up 13 to 15 percent, since 1982 was such a poor year for many companies. Unlike some other advisers, Mr. Peters does not expect the consumer to lead the economy out of the recession. ''We think the consumer will be cautious,'' he said.
That's because in large measure because unemployment will remain high. ''High unemployment is now a structural embodiment in the system,'' Mr. Peters said, ''and we anticipate it will remain with us for a good portion of the decade as America tries to adjust to its role as a leader in the post-technological decade.''
He views the world from a ''geopolitical'' standpoint. He believes the political climate this year will be skewed toward protectionism against US trading partners, particularly Japan. ''Subtle trade wars will become less subtle as 1983 unfolds,'' he predicted.
Against this background, Mr. Peters expects the equity markets will have a period of consolidation before trending upward again. And markets that have been volatile all year will remain that way this year, as pension fund managers and other money managers labor under increasing pressure to perform.
Despite this volatility, he believes it will be a ''plus year for stocks, assuming there are no exogenous shocks.'' He likes companies with big capitalization, such as IBM, General Electric, and Eastman Kodak. He also favors some ''special situations,'' such as MCI Communications and General Instruments. If there is any pickup in the economy, he says, the railroads could also look interesting.
For the manager involved in international investing, he expects protectionism to be the dominent factor. Thus, there will be a flight to quality in such financial arenas as the Tokyo Stock Exchange.
Mr. Peters sounds one note of caution for the individual investor. With the increased blurring of the financial system by the banks and brokerage houses, it will be easy for consumers to get confused. ''The investor will have many more options at his disposal,'' he concluded, ''and must pay more attention to the structure of his or her own balance sheets.'' Frank Parrish
Frank Parrish, senior vice-president at Fidelity Management Trust Company, is the most optimistic in the group. He now believes the economic recovery will be ''reasonable.'' He expects real GNP to rise 3.5 to 4 percent, which is more optimistic than most economists.''The recovery will not be a runaway,'' he said, ''but will be good.'' Unlike Mr. Peters, he thinks the consumer will lead the economy out of the recession. Mr. Parrish reasons that ''the consumer's income will be rising and if his attitude is not any worse, why shouldn't he spend the money he is getting?''
The huge government deficit - despite its impact on interest rates - will also help stimulate the economy, he says. ''It's putting $200 billion in the economy - not taking it out.'' And, finally, like other analysts, he believes inventory reductions are over. Any new orders will quickly be felt on each company's bottom line. The only negative factor Mr. Parrish sees is a continued drop in capital spending. With plant operating rates so low, companies have chopped capital spending plans and will probably continue to do so.
Despite the autumn run-up in stocks, Mr. Parrish says he is basically optimistic about the stock market. It won't be a good year for commodities. The bond markets should remain basically flat with interest rates trending back up again. Overall, he expects investors in bonds to earn 11 to 12 percent.
But he asks, ''If you can earn 15 to 20 percent in stocks, why invest in bonds?''
To make this return on stocks, he says, investors will have to be selective. He believes they should be invested in consumer cyclicals - stocks that are tied closely to the consumer and the economy - and some of the companies that supply materials to the consumer products companies.
For example, he would buy Goodrich stock because the company is heavily involved in chemicals used in making autos, but he would avoid Union Carbide, since the company is supplies more basic types of chemicals. In the same vein, he would buy National Steel while avoiding Bethlehem Steel, since National supplies a lot of steel to the auto companies, while Bethlehem has more of a role in capital spending. But he says he would rather be invested in the aluminum companies, since they are even more consumer-oriented than the steelmakers.
Other companies Mr. Parrish likes which are suppliers to consumer products companies include General Tire and United Technologies, which supplies fabricated parts to the auto industry.
Some of the airlines still look attractive to him, as do some building companies. He particularly singles out PPG industries as one that makes glass for automobiles and paints for consumer products. Thus, he notes, it should stand to benefit from increased consumer spending.