L. A. Analysts Pick Their Favorite Stocks for 1986
The Times asked the research directors of four Los Angeles-based brokerage houses to forecast the high, low and close of the Dow Jones average of industrial stocks for this year and to pick 10 stocks that they believe will perform well during the year. At year-end, The Times will review these forecasts to see how they turned out.
All four analysts predict some form of market correction this year, with two of the four predicting that the market will end 1986 at or near their lows for the entire year. All four experts also are bullish on technology stocks.
ROBERT M. HANISEE
Seidler Amdec Securities
1986 Dow Forecast
High: 1,972
Low: 1,492
Close: 1,519
Stock Picks
Consolidated Stores (discount retailing)
El Torito Restaurants (restaurants)
GULL (aircraft instruments)
IRT (inspection and control equipment)
Micro Mask (electronics)
Nu-Med (hospitals)
Optical Radiation (optical products)
SFE Technologies (electronic components)
Sound Warehouse (music retailing)
Tech-Sym (electronics, aeromechanics, real estate)
Hanisee sees the bull market’s momentum continuing through the first half of 1986, with the Dow industrial average flirting with the 2,000 level thanks to a strong economy and resurgent capital spending. But, by the fall, he says, the recovery will appear to be running out of gas, and thus the market will “weaken substantially,” falling below current levels.
Hanisee is high on technology stocks, which is a major focus of his firm’s research. His recommended technology stocks include Tech-Sym, an electronics, aeromechanics and real estate firm that is expected to recover from disappointing earnings.
He also likes Optical Radiation, which has developed a new type of eyeglass lens that could double the firm’s sales and earnings once manufacturing problems are solved.
Among non-technology stocks, Hanisee is recommending Consolidated Stores, a retailer specializing in close-out merchandise. It has an aggressive management and high-growth potential, he says.
DONNA HOSTETLER
Crowell, Weedon & Co.
1986 Dow Forecast
High: 1,760
Low: 1,550
Close: 1,550
Stock Picks
Advanced Micro Devices (semiconductors)
Augat (electronics)
Avnet (electronics)
Dataproducts (computer printers)
Hewlett-Packard (electronics, computers)
Honeywell (information processing, computers)
International Business Machines (information processing, computers)
Loral (defense electronics)
Motorola (diversified electronics)
National Semiconductor (semiconductors)
Hostetler expects the current short-term market rally to run out of steam around the middle of 1986. Its longevity, she says, is “like stretching a rubber band; it can only go so far and then has to snap back.”
But before the rally fizzles, she says, investors will shift from conservative blue chip stocks into aggressive stocks, particularly technology issues, which peaked in June, 1983, and bottomed out in June, 1985, during a major industry shakeout.
Hostetler is so bullish on technology stocks that all 10 of her stock picks for 1986 are in this group.
“Two years are long enough to stay out of favor,” she says. Through widespread cost-cutting efforts, technology firms have become “lean and mean” and thus any increases in revenue from an industry recovery will almost immediately boost profits, she says.
THOMAS J. FOSTER
Wedbush, Noble, Cooke
1986 Dow Forecast
High: 1,650
Low: 1,350
Close: 1,650
Stock Picks
General Electric (diversified manufacturer)
Hewlett-Packard (electronics, computers)
Novo Industri A S (pharmaceuticals, enzymes)
Noxell (cosmetics)
PHH Group (automotive and aviation services, relocation services)
Redman Industries (manufactured housing)
R. J. Reynolds (tobacco, food and beverages)
Seagate Technology (computer components)
Southwest Airlines (air transportation)
Standard Brands Paint (specialty retailing)
Foster says “the market could be getting toppy”--too pricey--and thus he expects a correction in the first half of 1986.
Foster dislikes food and drug stocks (“they are pretty pricey”), broadcasting stocks (“takeover rumors have driven valuations too high”), consumer durables (“the high level of consumer debt will discourage buying”) and energy (“oil pricing remains weak”).
He likes stocks that will benefit from the long-term trends of lower inflation and low interest rates.
Commenting on some of his favorite individual stocks, Foster says General Electric’s proposed merger with RCA “is a good thing for GE.” Redman Industries, a manufactured-housing producer, is gaining market share and has lowered its debt, he says. Standard Brands Paints stands to benefit from a rebound in the home improvement industry, he says.
WERNER E. KELLER
Bateman Eichler, Hill Richards
1986 Dow Forecast
High: 1,750
Low: 1,500
Close: 1,650
Stock Picks
Applied Magnetics (computer components)
Cannon Group (film production and distribution)
Financial Corp. of America (savings and loan)
Glendale Federal Savings & Loan (savings and loan)
Carl Karcher Enterprises (restaurants)
Lockheed (aerospace)
Marshall Industries (electronic components distribution)
Occidental Petroleum (energy)
PacifiCare Health Services (health care)
SFE Technologies (electronic components)
Keller sees lower interest rates as key in fueling a continued market rally this year. He likes stocks that will benefit from lower interest rates, such as financial institutions and housing firms. He also likes stocks in such cyclical industries as metals and energy.
Keller also likes technology stocks, adding that, if you buy them now and are right that they will go up in price, it could be the “only time you will need to be right in your whole life,” given the group’s potential for big price gains.
Among his recommended technology stocks are Marshall Industries, an electronics components distributor that has potential for strong earnings growth. He also likes Applied Magnetics, a manufacturer of magnetic recording heads for the computer industry.
For high rollers, Keller recommends Financial Corp. of America as “the ideal vehicle for a play on lower interest rates.” He contends that the troubled savings and loan’s portfolio of high fixed-rate loans will be worth more with lower interest rates. But a rise in interest rates “could totally wipe out shareholders’ equity,” he warns.
