What the Experts Are Saying
Charles Clough, Merrill Lynch & Co.’s top market strategist, sees a tough economy ahead unlike many of his peers who see the recession ending quickly. “This recession is hitting the service sectors,” such as advertising, real estate and accounting, he notes. That’s a big change from previous recessions that mostly affected manufacturing, and it promises deeper pain for the economy, he says.
So while others see the stock market bottoming in the first quarter, Clough expects the low “late in the first half.”
But that pain also will guarantee that the Federal Reserve will continue to slash interest rates, he says. Short-term rates could fall another 2 percentage points, Clough says, putting 3-month Treasury bill rates under 5%.
The plunge in rates will translate into healthy gains for bond investors, Clough says, so he advises owning long-term bonds--even as long as 30 years. And it also will mean strong moves for select stock groups, despite the general market gloom, he says. So he suggests a portfolio mix of 55% stocks, 40% bonds and 5% cash.
Which stocks? Electric utilities top Clough’s list. As interest rates drop, utilities’ high dividend yields of 7% to 9% will lure new investors, he believes.
Clough also expects health-maintenance organization stocks to remain winners in 1991, because they hold the key to cutting soaring health-care costs. And the oil field services group, which has stalled since the Iraqi crisis, “may be a good story for the entire decade,” not just 1991, Clough says. Regardless of the price of oil, oil field companies’ new technology will be in demand and their earnings will boom, he says.
Joe Ransom may have something of an advantage over other money managers: At a time of great uncertainty, he has to take a fresh approach to investing--because he’s newly on his own.
Ransom, who helped run money for Atlanta-based Trusco Capital (a unit of SunTrust Banks), founded Precision Asset Management in Santa Monica in 1990. The minority-owned firm is backed by two big Eastern money managers.
Ransom is trying to lure clients on the strength of a computerizedstock-picking model. The model, which looks for stocks of companies whose earnings are beginning a strong up trend, was smart enough to pick out personal-computer maker AST Research about two months ago, Ransom says.
But Ransom admits that as the recession bears down, he’s finding it tougher to identify stocks where earnings will continue to rise. “In June, 200 companies met our criteria. Now, the list is down to 150.”
So caution is the watchword, Ransom says. He advises keeping up to 25% of one’s portfolio in cash. But he’d still keep a 60-40 stocks-to-bonds mix with long-term money. Bonds may look more attractive given sliding interest rates, but Ransom still believes in stocks’ superior returns over time--and he also thinks it’s a big mistake to think you can play a basically conservative investment such as bonds to match stocks’ returns.
Ransom sees long-term value in such stocks as hospital firm National Medical Enterprises, fruit giant Chiquita Brands and Betz Labs, which makes chemicals for water treatment. “The fact that they’re near their highs doesn’t deter me from buying,” he says. They’re up for a reason: They deliver earnings.
Clients of Newport Beach-based Apex Asset Management learn quickly that owner Dorothea Zimberoff isn’t interested in timing short-term market moves. She looks out 12 to 24 months, she says, because in 21 years of watching markets, “I’ve learned that the way for me to make money is to hold on to things for a while.”
If she were investing for a new client today, Zimberoff says she would invest 40% of the money in stocks, 30% in bonds and 30% in cash accounts. But when she looks out a year or two, Zimberoff sees big gains ahead for high-quality stocks--better than what bonds will provide. So she says her 40% stock weighting could jump to 70% to 75% in the next few months, if stock prices drop.
Why even think about stocks, staring into a potentially deep recession? Zimberoff remembers the depths of the 1973-’74 bear market, when there were “more negatives than there are today.” Yet good stocks roared back in 1975.
Zimberoff, who founded her $6.5-million asset firm two years ago, made a major bet on drug stocks in 1990, and was right.
Now, she sees great long-term potential in energy stocks such as Amoco, Mobil and Dresser Industries. “I don’t want to be out of those,” she says.
And she’s beginning to look at depressed industrial stocks. Stocks such as GE and machinery maker Ingersoll-Rand are catching her eye. “I may have missed the lows there,” she says, “but if there’s going to be three years of economic growth in the next up cycle, it’s not too late to buy them.” Lower prices early in 1991 would just make her more interested.
