Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, January 1, 1995 TAG: 9501040008
SECTION: BUSINESS PAGE: D-1 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Medium
The new year will be a time for cautious investing in a market that could be volatile for the next couple of months, according to some Roanoke Valley securities brokers.
But some of those same brokers said Wall Street should settle down as 1995 progresses, making this a good year to invest, but with care.
William Nash, manager of the Roanoke office of Scott & Stringfellow Investment Corp., said the market was torn in 1994 between the opposing forces of rising short-term interest rates and good corporate earnings.
He expects more tightening of economic controls by the Federal Reserve Board and, therefore, another increase in interest rates this year as the Fed continues to rein in inflationary pressures.
But he feels "cautious optimism" because he believes "the worst is over." He expects interest rates to stay fairly level after the initial boost while corporate earnings continue to remain healthy.
Nash said Scott & Stringfellow recommends the stocks of Wal-Mart Stores Inc. and Bristol-Myers Squibb Co., along with two Virginia-based companies: United Dominion Realty Trust, and Sterile Concepts Holdings Inc. The latter was recently spun off by Carilion Health System of Roanoke.
Robert Kulp, manager of the Roanoke office of A.G. Edwards & Sons, generally agrees with that assessment but seems less of an optimist than Nash. "Rising interest rates and a strong economy make for conflicting pressures" on the stock market that will continue into 1995, he said.
Kulp looks for corrections of as much as 5 to 10 percent occurring during the year. That, he says, is normal and to be expected.
The key to successful investing, he says, is to buy stock with potential for better-than-average performance. Some of his recommendations are Chrysler Corp., Emerson Electric Co., Time Warner Inc. and Quaker Oats. Co
Suzn Head, assistant manager of the Roanoke office of Dean Witter Discover & Co., says her company's target for the Dow Jones industrial average in 1995 is 4,200 to 4,400 points, with most of the gain in the second half of the year. The Dow currently is about 3,800 points. "We see inflation limping higher, interest rates falling in the second half of the year with a target of 7.25 percent on the 30-year Treasury, a 6-to-8 percent strengthening in the dollar," deceleration in the economy without collapsing earnings and foreign investors in the stock market.
She would allocate a portfolio equally between equity and fixed-income investments.
Head recommends American manufacturing and industrial companies that are export-competitive such as Raytheon Co., Emerson Electric and Foster Wheeler Corp. She also picks companies with first-class products from years of foreign competition like Chrysler and Ford Motor Co.
Head also cites Novell Inc., First Data Corp., Tandem Computers Inc., McDonald's Corp., Coca-Cola Co. and Home Depot, along with
Columbia HCA/ Healthcare Corp., Wellpoint Health Network and Quorum Health Group.
Michael Smith, president of Ferguson, Andrews & Associates Inc., predicts "a gigantic rally in bonds." He admits that is "a contrarian opinion."
Inflation will be very low, he says, dropping to less than one percent. As bonds rally, he says, the yield will drop from a top of 8 percent to less than 6 percent. "The stock market will limp along behind the bond market."
He would be "an aggressive buyer of bonds" early in the year. "Buy bonds as long as the 30-year Treasury is 7.75 percent," he advised.
As spring approaches, Smith would buy stocks.
Smith's recommendations are Wolverine Worldwide Industries, the maker of Hush Puppies and other casual footwear; Cisco Systems Inc., a computer networking company; Circuit City Stores Inc.; Computer Associates International, a software company; and Eskimo Pie Corp.
Peter Milward, manager of the Roanoke office of J.C. Bradford & Co., says two events from 1994 - the shift in political leadership in Congress, and increases in interest rates by the Federal Reserve Board - will have their full impact this year, offering new opportunities for the financial markets.
"A strong argument can be made for a slowing of the economy" this year, Milward said. When that happens, he predicts, Congress should raise demands for a cut in the capital-gains tax to about 20 percent. "We believe that this has very bullish implications for business and the financial markets," Milward said.
The financial markets do best in a slow-growth environment without inflation, he adds, and he expects the Fed to increase rates again in the first half, slowing the growth rate to 2.5 percent.
Although he expects corporate earnings to contract this year, the benefits of slower growth and lower interest rates in the second half of next year "will more than offset any short-term negatives."
Under that scenario, he expects the sectors that will outperform the market include health care, foods, technology and utilities.
by CNB