INVESTMENT OUTLOOK : ASSESSING THE MAJOR MARKETS : Wild Fluctuations Demand Caution : Watch Industry Trends for Clues to Stock Strategies

Western Union. Braniff. ZZZZ Best.

Sure, you could have made fast bucks on these once hot stocks. But more likely, you lost your shirt. What you should do is invest in stocks that capitalize on real investment trends--those that will last through the entire 1990s, not just for a few months.

After nearly a decade of a bull market and heightened stock market volatility, investors are approaching equities with greater caution. Although no one can forecast trends with foolproof accuracy, some key demographic, economic and political shifts are under way that should persist well into the 1990s, portending new strategies for investing in stocks.

The baby boom generation, born from 1946 to 1964, will continue to age. Labor shortages will develop as the baby bust generation (1965-75) enters the work force. Toxic wastes and other pollutants will become greater problems. Ever growing numbers of people will move away from congested cities with high-priced homes.

Here are some industries expected to benefit from these and other trends. Individual stocks in these categories, however, are not necessarily sure things. They will experience fluctuations and may not necessarily follow the expected upward trend.

* Telecommunications. E.T. was on the right track. Phoning home--as well as everywhere else--will be hot. Urban congestion, high transportation and housing costs, and other problems of city living will prompt more people to work at home and more companies to locate in rural areas. That means more demand for new technologies that can enable people to communicate faster and more efficiently.

Consequently, telecommunications could be the growth industry of the 1990s. By the year 2000, we will be using even more advanced forms of fax machines, cellular and portable phones and video-conferencing.

A word of warning, however: Manufacturing of telecommunications equipment could become a cyclical business, just like computers. The better the products, the less expensive they may become as well. And new technological advances will make products obsolete in only a few years. That makes it tougher to stay competitive.

* Information. No question, computers are hot. They have revolutionized the workplace and our lives, and that trend should accelerate. But the firms with the fastest hardware may not be the ones to invest in; such computer equipment is a cyclical business in which products become obsolete almost overnight.

More promising may be firms and industries that best use and market the information and programming provided through computers. That means companies involved in software, data bases and even entertainment--more programming will be transmitted through computers capable of presenting video and audio along with text.

* Energy. Enjoy today’s cheap oil prices. They won’t last. The stage is set for rising prices in the 1990s, says John D. Connolly, chairman of the investment policy committee at Dean Witter Reynolds. Conservation efforts have declined and non-OPEC production has stabilized. The Organization of Petroleum Exporting Countries has learned its lessons from the 1970s and is not likely to let prices rise too far out of hand, but the cartel is still in the driver’s seat, Connolly says.

“We’ve gone through the 1980s, in which OPEC was a joke. But it’s a joke no longer,” says Connolly. Look for higher prices to benefit major oil producers and oil service companies, he says.

* Pollution and waste management. Toxic waste, sewage, garbage. The supply is growing. Cleaning it up is one of tomorrow’s growth industries.

The Bush Administration plans to seek increased spending on cleaning up the environment, which will help firms in such fields as waste management, solid waste disposal and pollution control. In addition, look for companies with large tracts designated as landfills; such land will become ever more scarce.

The government is expected to create free market incentives to get cleaner air and water. Companies may be able to buy and sell pollution rights, creating greater demand for pollution control equipment. And many government functions, such as water treatment, increasingly may become privatized.

* Health care. Death and taxes are still the only things certain in life--but death at least seems to be easier to put off these days. People are living longer, and as the baby boom generation ages, so will its demand for health services. Health care now accounts for 12% of the gross national product, contrasted with 8% some 15 years ago, Connolly says. That makes it one of the few large industries that is still growing, and no wonder: Keeping people alive longer creates more demand for the product.

“If I sell you a heart drug that extends your life, there’s a pretty good chance of selling you an arthritis drug down the road,” Connolly says. “It almost creates its own demand. It’s a super growth industry.”

Also, the prospect of labor shortages in the 1990s means more working moms, which in turn will increase the need for child care and elder care.

* Travel and entertainment. Pete Rose may have been gambling in the 1980s, but more and more people will gamble in the 1990s. As they grow older and wealthier, baby boomers will spend less on housing and more on entertainment. Casino companies, airlines, hotels, theme parks and vacation resort developers will benefit.

“The early postwar baby boomers will be moving into the era where they will start looking at their golden years for the first time,” says Kenneth Fisher, chief executive of Fisher Investments Inc., a Woodside, Calif., money management firm. Firms that make recreational products, such as motor homes, boats and recreational vehicles, should reap the rewards, Fisher says.

* Financial services. As baby boomers age, their incomes and savings will rise. That will help mutual fund companies, larger banks, insurance companies and others able to collect this money through mutual funds, annuities, credit cards and similar products, Fisher says. And look for big financial services firms to branch out. “Ten years from now, brokerage firms will sell a lot more than just financial services,” Fisher says.

These are not the only investment themes for the 1990s. Look for rising demand for temporary-help services as labor shortages and rising benefit costs force employers to use part timers. In the auto industry, target companies that can effectively sell luxury cars at affordable prices.

Firms in construction and building materials should benefit from the nation’s expected push to upgrade roads, bridges and other elements of the infrastructure, says Arnold Kaufman, editor of Standard & Poor’s Outlook newsletter. Check out firms able to take advantage of the erosion of trade barriers in Europe beginning in 1992 and growing capitalism in the East Bloc.

What about industries that will not be so hot?

One is housing. Many baby boomers already own their own homes, and the baby bust generation possesses less buying power. But some segments of the housing industry may still do well, such as companies that upgrade homes. And the aging population means more demand for retirement-oriented housing.

Another slowing industry is defense. Peace is great--unless you are a weapons maker. Expect improved East-West relations, plus budget pressures, to translate into slower growth for major military programs.