Market Watch : ‘Story Stocks’ Are History
For years, Wall Street has been a thrill seeker’s dream. It was a picture postcard of fads and excesses in everything from limousine jam-ups to million-dollar bonuses. Not to mention the soaring performance of good “story stocks.”
The so-called good stories of yesteryear seldom mentioned such mundane matters as company earnings. They were about enterprises such as ICN Pharmaceuticals, a biotechnology firm with a drug that once promised to cure AIDS; De Laurentiis Entertainment Group, the company that harnessed Dino De Laurentiis’ movie genius, and Color Systems Technology--a tiny Marina del Rey company that planned to colorize thousands of classic black-and-white films.
Admittedly, ICN continues to look for a good disease to cure with its still-promising drug, De Laurentiis filed for bankruptcy and Color Systems never posted a profitable year. Still, for one brief shinning moment, these stocks were flyers.
But now, as the books close on the first quarter of 1990, investors are detecting a completely new Wall Street tale. And it’s a dull one. Sure, there are still a few limos, still a few multimillion-dollar salaries. But, by and large, the stories that market experts tell about the Street’s hottest stocks would put you to sleep long before bedtime.
Forget the nail-biters. Wall Street’s favorite tale these days is the one about “consistent, strong earnings growth.” Never has that been more evident than in market performance during the past six months.
Some of the first half’s hottest industry groups, according to an analysis of the performance of stocks in the Standard & Poor’s 500 index by Smith Barney, Harris Upham & Co. in New York: high technology, engineering, retail, pollution control, aerospace and beverages. Or, to put it another way: IBM, Fluor, Limited Inc., Waste Management, Boeing and Coca-Cola. During the second quarter, drug companies, including Merck, and household products companies such as Clorox have also proved popular.
But whether looking at the half or the quarter, no one will be overcome by companies telling turnaround or takeover stories, or even by those with soon-to-be-released blockbuster products.
Today’s winners are just strong, well-capitalized companies that have consistent earnings and the ability to expand into faster-growing overseas markets over the next several years.
The market disasters, on the other hand, could make their tales into best-selling books.
There’s gold, which has purportedly been suffering because of selling by the Saudis and the Soviets. There’s the hotel group, which took a nose dive after Barron Hilton settled his battle for control of Hilton Hotels and then nixed plans to sell the operation. And there’s money center banks, buffeted by everything from souring real estate and developing country loans to Donald J. Trump.
If this were just the 1980s, it would soon be all turned around. In the ‘80s, investors knew it was a big mistake to hang on to the same industry groups quarter to quarter because there would always be a twist--a surprise ending. Somewhere there would emerge a moribund company taken over at a staggering multiple. There would be an earth-shattering medical breakthrough. Or someone would come out with a blockbuster film. And that’s where the real returns would be.
But this is 1990--the Year of the Horse. A plow horse, perhaps.
So what do market experts expect for the latter half of 1990? Hold on to your IBM. “Earnings visibility is the theme of 1990,” said Michael Metz, market strategist at Oppenheimer & Co. Where yesterday’s investor might start looking for “good stories” in out-of-favor groups right now, Metz says that might not be such a hot idea.
“The idea of buying into an out-of-favor group is not in favor right now,” Metz added. “Those who have done it have paid a terrible price.”
Investors are best advised to take a long-term view and forget about short-term trading profits, added Marshall Acuff, portfolio strategist at Smith Barney.
“Look at companies with favorable long-term prospects,” he added. “If you emphasize relatively strong companies, you know that even if the stock market gets hit, those stocks will eventually recover and probably go higher.”
One more clue to the future: 1991 is the Year of the Sheep.
Market Beat’s regular columnist, Tom Petruno, is on vacation.
FIRST-HALF WINNERS
Stock industry groups that led the market in the first half of 1990:
Group 1st-half change Electronics-Semiconductors +29.9% Engineering & Construction +26.2% Retail: Specialty +25.2% Retail: Specialty Apparel +22.5% Health Care Miscellaneous +22.4% Computer Systems +19.7% Beverages: Soft Drinks +18.7% Pollution Control +16.1% Oil Well Equip. & Serv. +14.5% Aerospace/Defense +14.0%
Source: Smith Barney, using S&P; indexes
FIRST-HALF LOSERS
Stock industry groups that performed worst in the first half of 1990:
Group 1st-half change Hotels & Motels -33.7% Leisure Time -23.2% Truckers -21.2% Money Center Banks -15.8% Auto Parts--After Market -15.0% Gold -14.6% Major Regional Banks -12.8% Newspaper Publishing -12.7% Household Furn. & Appl. -12.2% Chemicals -11.6%
Source: Smith Barney, using S&P; indexes
