IT'S time, many stock market observers say, to start thinking defensive. ``I feel very defensive when I look at the economy today,'' says Robert Brusca, chief economist for Nikko Securities Company International Inc. ``A lot of people are looking for a `soft landing' [a slowing in economic growth without a recession]. But I think that people buying that scenario are soft headed.''
A soft landing at this point, says Mr. Brusca with a laugh, is a euphemism for ``stagflation'' - in other words, slower growth, but accompanied by higher inflation.
The stock market, notes Ralph Acampora, a technical analyst with Kidder, Peabody & Co., has gained more than 150 points, or about 7 percent, since its late March low of 2,240. But he says the market is now in an ``overbought state.'' Whenever this condition occurs, he says, there is the strong possibility of a ``near-term pause or correction.''
The upshot? Mr. Acampora believes that investors will be facing some major question marks about the economy - and the movement of the market - during the months ahead. But he does not believe that investors should totally withdraw from the market. Rather, he says, it is time to be careful and look for the types of stock that can weather uncertain market conditions.
Acampora currently likes three stocks that he believes are tailor-made for a market ``pause'': Penn Central, Tenneco, and Weyerhaeuser. All three companies, he believes, are trading well below the ranges supported by their underlying corporate fundamentals. All companies could also be classified as ``asset oriented'' issues.
Consider Weyerhaeuser. It has considerable forest product and paper operations. It also has a number of related operations, including real estate, nursery services, and diapermaking, that could be spun off at a profit to the parent company.
Brusca and Acampora are not the only market experts here arguing that individuals should be particularly selective in terms of investing practices.
Raymond Worseck is chief economist at A.G. Edwards & Sons Inc. in St. Louis. But whereas Brusca sees the possibility of stagflation during the period ahead, and Acampora sees the odds favoring a near-term market pause, Mr. Worseck sees an overall economy ``that is currently picking up steam.'' Worseck believes that one result of that continuing strong performance is that the Federal Reserve Board will be forced to continue to tighten credit, driving short-term interest rates ``up another 50 basis points.''
Eventually, says Worseck, the Fed's credit tightening will produce slow growth. He says this means that, depending on a person's individual investment needs, there is a good case for considering such defensive stocks as consumer goods, utilities, or credit-sensitive financial institutions.
Consumer staples, notes A. Marshall Acuff Jr., an analyst with Smith Barney, Harris Upham & Co., have been the second-best-performing sector of the market this year.
Writing in a recent Smith Barney research publication, Mr. Acuff points out that interest in such stocks reflects concern about slowing corporate profits in general, as well as the ``reasonable valuation'' found in most consumer companies. Acuff particularly likes consumer companies with good growth potential.
While there is a real question mark about whether companies engaged in heavy industry will continue to post good earnings, given the possibility of a slowdown, consumer food stocks should continue to have solid earnings momentum, says O. Lee Tawes III, an analyst with Oppenheimer & Co.
``Food stocks,'' says Mr. Tawes, ``should outperform the market in the intermediate term.''
Tawes believes there will be ``a lower growth rate in the period ahead, plus a peak in food prices.''
Still, all the earnings multiples look fairly good for the food group, he says, ``compared to the flattish earnings'' expected for the broader market as a whole.
Tawes believes that packaged-food-company earnings will grow 13 to 15 percent a share over the next 18 months.
Indeed, food companies would be particularly attractive, he argues, if this summer's weather patterns approach more normal seasonal levels, rather than produce a repeat of the drought conditions that prevailed last year.
Tawes likes Borden, CPC International, Quaker Oats, Sara Lee, and Archer-Daniels-Midland.
These companies have strong consumer and/or product identification. CPC, for example, turns out such well-known brand names as Hellmann's (Best Foods) mayonnaise and Mazola corn oil, products that are expected to continue to sell well whatever happens to the overall United States economy in the period ahead.