Some Pros Start to Shift to Issues That Have Lagged
Bottom-fishing for stocks hasn’t worked very well this year: A lot of beaten-down issues have stayed down, while highflying stocks have continued to soar through the stratosphere.
But some money managers say Wall Street’s tastes may be changing, if slowly. As the market overall hovers near record highs, some pros are showing a greater desire to buy stocks that have languished rather than chase this year’s winners:
* Robert Gintel of Gintel Funds in Greenwich, Conn., has been buying Intergraph, a computer-graphics systems firm whose stock trades for $19, down from $31.50 earlier in the year. The stock’s price is just 13 times the company’s most recent four quarters’ earnings per share, well below the broad market average of about 20 times.
Intergraph, in business since the 1960s, saw its stock trashed this summer on worries that profit in the second half of this year will disappoint. But Gintel believes that most of the risk has been washed out of the stock at the current price, which isn’t far above the firm’s book value of $14 a share.
* Mark Lipson, another Connecticut investor--he heads the National Funds group--recently bought such depressed stocks as IBM Corp. ($102.625 Tuesday) and conglomerate Tenneco ($37.25), whose shares remain more than 25% below their 1991 highs. Lipson figures that the global economic recovery will pick up speed next year, so IBM and Tenneco should benefit. And they make more sense to him than paying for stocks that everyone already loves to death.
“A lot of stocks do seem overvalued,” he says. “We’re positioning ourselves more conservatively.”
That kind of caution may become much more widespread in the next few months if more highflying “growth” stocks suddenly reverse course. Wall Street got an ominous jolt last Thursday, when one of the darlings of health-care investors--catheter maker SciMed Life Systems--saw its stock plummet $29.75, or 34%, to $57.25, after the firm disclosed patent problems with a key product. The stock had rocketed from $28.25 to $93 this year.
“You get something like a SciMed, and people start looking over their shoulders,” says James Volk, over-the-counter institutional trader for Charles Schwab & Co. in San Francisco.
One strong incentive for stock bargain hunters is continuing good news out of the manufacturing sector of the economy. Shares of many industrial companies, such as IBM and Tenneco, are trading well below their highs earlier in the year, even though manufacturing appears to be the only bright spot in the weak economy.
Tuesday, the National Assn. of Purchasing Management, which tracks corporate buying patterns of raw materials and other goods, said its index of manufacturing activity expanded for the fourth straight month in September. Manufacturers are being helped in part by continuing demand overseas for U.S. goods.
But some investors caution that industrial companies still haven’t shown that they can make good money off the expected 1992 recovery, especially if it is sub-par. Indeed, many of the rallies in industrial stocks this year have quickly faded because there’s little belief yet in a sustained profit boom for companies providing such basic goods as metals, chemicals and machinery.
The latest casualty is the paper and forest products industry: Tuesday, Georgia-Pacific fell $1.50 to $53.375, Scott Paper lost $1 to $37.25, and Weyerhaeuser slumped $1.75 to $26 on new worries about near-term profits and 1992 prospects.
Alan MacGregor, of the Westlake Village money management firm MacGregor/Rodman Investment Management, maintains that investors are better off staying with growth stocks than hunting for down-and-out industrial issues with iffy profit forecasts. “You don’t get your (market) leaders from depressed stocks,” he argues.
Better Dividends Ahead? Standard & Poor’s Corp. reports that the number of companies raising cash dividend payments to shareholders totaled 63 in September, up from 56 in September, 1990. That’s the first year-over-year increase in 22 months--a measure of how miserly companies have been with their cash as profits have dwindled with the weak economy.
Arnold Kaufman, the editor of S&P;’s Outlook investment newsletter, says September historically is a slow month for dividend hikes, so it’s too early to say the trend has reversed. To get dividends moving up again at a healthy pace will first require a recovery in corporate profits, and that certainly hasn’t happened yet.
Still, Kaufman believes that dividend growth will resume by year-end, assuming that the economy’s rebound stays on track.
Another good sign is that just seven companies cut dividends in September, the lowest figure since January, 1990. But Kaufman also notes that 29 companies were added to the list of firms that have omitted dividends entirely. That was the highest number of new omissions since 32 firms went that route in December, 1990.
Good News on Dividends The number of companies raising dividend payments to shareholders totaled 63 in September, up from 56 a year ago-the first year-over-year increase since October, 1989. The trend in recentmonths:Source: Standard & Poor’s Corp.
