ROANOKE TIMES
Copyright (c) 1995, Roanoke Times
DATE: Saturday, December 31, 1995 TAG: 9601020146
SECTION: BUSINESS PAGE: D-1 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
ANY adjective seems an understatement. The stock market's 1995 performance was sensational, great, terrific and fabulous, said several Roanoke Valley securities brokers.
But knowing that the market runs in cycles, with a period compensating for earlier ones, the words these brokers are using to project 1996's markets are more subdued: choppy and volatile, more like normal, even one forecast for a significant correction from what might be considered the excesses of 1995.
Richard Wertz, a vice president at A.G. Edwards & Sons in Roanoke, said you rarely see two big years in the market back-to-back.
He expects the financial market to "digest its gains," saying he, and most investors, would be happy with a 10 percent gain in 1996.
Just how good was 1995 for investors? That obviously depends on where they put their money.
But someone who invested $10,000 in the Dow Jones Industrial stocks at the start of last year would have $52,800 in hand now, said Suzn Head, manager of the Roanoke office of Dean Witter Reynolds.
The Dow Jones average, which recorded 69 record highs during the year, includes just 30 blue-chip stocks. They are shares in companies that have a huge impact on global business but probably not representative of the average investor's portfolio.
People benefited from the market gain only if they were in the right stocks, noted James Kern, manager of the Roanoke office of Interstate/Johnson Lane.
"It was a market of stocks as opposed to a market," he said.
Still, 1995 will be a difficult year to forget.
Michael Smith of Davenport & Co. in Roanoke called it "a great year" when every stock index moved up by 20 percent or more.
This is the first time in history, Smith said, that markets have moved ahead for 12 years without a significant correction. The temporary downturn in 1987, including an October slide that some still remember as a crash, "was just a blip," Smith said.
Peter Milward, manager of the Roanoke office of J.C. Bradford & Co., said everyone agrees that 1995 was "the best year in recent memory, a fabulous year," with some indices up as much as 30 percent to 35 percent.
Predictably, the brokers whose commissions depend on investors trading stocks are not issuing any strong warnings about 1996.
Indeed, there are a couple of things on the horizon that may offset any impact of a downturn to balance this year's boom.
The Federal Reserve Board is expected to maintain its control over inflation with interest rates declining. Companies are more efficient, productive and competitive, which is good for the long-term outlook, Wertz said.
Also, it is the final year of President Clinton's current term and, history suggests, the markets always go up in the fourth year of the presidential term, said Bill Nash, head of the Roanoke office of Scott & Stringfellow. But Wertz said he expects a volatile market in a presidential election year.
David Herrick, manager of the Bedford office of Legg Mason, who noted that 1995 was a good year except for some late profit-taking in technology issues, said that same trend should continue early in the new year, especially if Congress reduces the tax rate on capital gains. That's why he's telling clients to wait until the first of the year to buy because they might find some good bargains.
Here are some specific predictions and recommendations from the regional brokers: Jones index level of roughly 5,600 to 5,700. Even so, he expects a correction of about 5 percent by mid-January, after which the market will again move higher. He predicted no serious break in the market until 1997.
Within the overall market, he predicted, there won't be a lot of internal corrections.
Among regional companies, Smith said, 1996 should be "a terrific year" for Roanoke Electric Steel Corp., because of a huge demand for its products along with an increase in prices for its goods.
Despite their prior gains, Smith said, banks should have "a reasonable year." He thinks that First Union will merge "with another bank or two and do well." Smith also expects a good performance by Salem Bank & Trust and Valley Bank.
And if the winter is cold, Smith said, Roanoke Gas Co. stock should do well.
Next year, Milward said, will be "a little more choppy and volatile," with many short-term swings. Milward said he expects the first quarter may see stocks decline in price, creating "a great buying opportunity" before the markets move slightly higher by year-end.
If Milward were investing now, he would buy into Washington Mutual Fund for its diversity and global holdings. He said foreign markets should outperform domestic stocks. Another favorite is the small cap world fund of American Funds.
Among stocks, he likes two Nashville companies, both traded on the New York Stock Exchange: Central Parking and Gaylord Entertainment.
"Looking ahead, we see a pretty attractive market," said Bill Nash, head of the Roanoke office of Scott & Stringfellow Inc.
Among local stocks, Nash likes Valley Bank. It's thinly traded, he said, but buyers are available for the shares when stock comes on the market.
He also recommends Piedmont BankGroup of Martinsville, which is under new management and on Monday changes its name to MainStreet BankGroup Inc. Nash looks for earnings growth in the coming two years.
Although it's not on his brokerage's list of stocks recommended to buy, Nash said he believes that Roanoke Electric Steel Corp. is a good value. And although its stock was down recently, Nash said Motorola Inc. should have long-range earnings growth. The company plans to build a semiconductor manufacturing plant near Richmond.
Head predicted that the market will reach the level of 5,600 next year. She has "a very positive outlook" for the next six to nine months.
While not making specific recommendations, Head said her company is suggesting to clients that their portfolios are 40 percent bonds and 60 percent in shorter-term equities.
Stephen Williams of PaineWebber in Roanoke, said he expects "a more normal rate of return" on investment in 1996, but the year should be profitable because interest rates should drop further while company earnings rise.
Still, he said, it's impossible to predict the market for one year, noting "we could very easily see a significant correction some time next year," Williams said. This is especially true because the bull market has run on so long without a correction.
People cannot foresee the influence that some unexpected events might have on the market, especially geopolitical events, Williams said.
Wertz noted that in 1996 members of the baby-boom generation will start turning 50 years old, which should create good markets in health care. They will also be investing heavily for their retirement, which should boost the stocks of banks, brokerage houses and insurance companies. He also expects technology companies to recover from their year-end slump.
Among local companies, Wertz noted two thrifts: SWVA Bancshares and Bedford Bancshares. Their stock prices have moved from $10 a share at issue to $16 and $18, respectively.
He said rumors are circulating that Norfolk Southern Corp. will buy Conrail or another railroad and that Signet and Crestar banks will be bought. That makes those stocks speculative buys.
Kern said the market should profit next year from more declines in interest rates. The market expects good earnings next year, which could create downside potential if earnings fail to live up to predictions.
He predicted that utility stocks will do well next year.
Among local stocks, Kern likes NationsBank, First Union and Norfolk Southern. Kern is also hoping for a rebound in the furniture industry.
Ryland H. Hubbard Jr., manager of the Roanoke office of Merrill Lynch, said the United States markets should make modest gains next year. But he said his brokerage is more excited about the potential for new bull markets overseas. The company is advising its clients to invest in international markets next year.
LENGTH: Long : 151 lines ILLUSTRATION: GRAPHIC: 2 B&W, 4 color charts. KEYWORDS: YEAR 1995by CNB