Some Industries That Could Profit From Bush Plan

President Bush’s economic stimulus package seems to have something for everyone. But with the possible exception of home builders, analysts say most companies are likely to see only incremental earnings gains from his plan to boost business and consumer spending this year.

Even so, Wall Street isn’t just writing off the Bush program of tax credits, capital gains tax cuts and investment incentives. If even some of Bush’s ideas make it through Congress, “it will definitely make a difference” to the economy, says Charles Brandes of Brandes Investment Management in San Diego.

Perhaps most important, the Bush plan could change stock market psychology long before it produces results: In recent weeks, a growing number of investors have been willing to take a chance on long-depressed stocks of industrial companies, builders and others that should benefit from a recovery. That shift could accelerate if the President’s program persuades more investors that the recovery is getting nearer.

Here’s a look at some of the industries and individual companies that could be helped by Bush’s proposals:

* Home builders: If any economic revival plan passes Congress, “it’s highly likely that it will contain some type of housing credit,” says Eric Miller, investment strategist at Donaldson, Lufkin & Jenrette Securities in New York. Republicans and Democrats alike are championing the idea of helping people buy homes via tax credits or by allowing them to tap retirement funds.

Lawrence Horan, analyst at Prudential Securities in New York, believes that sales of new single-family homes could rise 10% to 20% from the current 1-million-home annual pace if Congress agrees to Bush’s proposed $5,000 tax credit for first-time buyers, and other measures.

If home buying indeed surges, the benefit will flow to large, financially able builders such as Kaufman & Broad, Standard Pacific and Ryland, Horan says. “The smaller builders don’t have the ability to respond to increases in demand--they’re lucky to have survived,” he says. His favorite big builder: Costa Mesa-based Standard Pacific, which he believes could earn much more than analysts’ consensus 1992 estimate of 92 cents a share.

* Capital-equipment makers: Bush proposes allowing companies to immediately deduct 15% of the purchase price of computers, machinery or other capital equipment they buy between Feb. 1 and Dec. 31. The idea is to tip the balance in favor of such purchases at companies that have been sitting on the fence, reluctant to make a move because of the economy.

While such an investment credit wouldn’t be a windfall for capital-equipment makers, “at the margin, it’s a plus,” says Mark Altman, analyst at PaineWebber in New York. “There are (potential buyers) who would change their behavior with a tax incentive.” He notes that many electrical machinery companies had already been talking about a bottoming out of order patterns in recent months. That suggests the next turn will be up.

His favorite companies for a recovery are General Electric, because of its diversity of businesses, and Honeywell, a leader in automation and control systems for factories. He also says electrical machinery maker Emerson Electric “has among the best long-term outlooks” of any company in its class, though he notes that the stock already has soared from $36.875 to $55.125 the past year.

* Miscellaneous: Long-depressed boat builders such as Brunswick Corp. could get at least a psychological boost from the proposed lifting of the luxury tax on boats, even though analyst Sidney Heller at Lehman Bros. in New York says boats over the $100,000 mark account for only 6% to 8% of Brunswick’s boat sales.

President Bush also wants to increase spending on highways and bridges, which could benefit such California highway construction companies as Granite Construction and Kasler Corp. Those stocks have jumped since a $151-billion transportation bill passed Congress last November, but infrastructure repair remains such a favorite issue (in politics and among the public at large) that Granite and Kasler may continue to gain investor attention.

Money manager Brandes, meanwhile, believes that investors should put some money into economy-sensitive stocks not based on a potential one-time boost from the Bush program, but rather based on the simple likelihood that a genuine recovery will occur eventually. Also, many of the stocks’ price-to-earnings ratios remain reasonable compared to the market average, even if the companies earn only the meager amounts analysts forecast for 1992.

Brandes’ favorites include Ford Motor, Boeing and Hanson, a giant company heavily involved in such cyclical fields as building products, coal, asphalt, cement and chemicals in the United States and in Britain.

Stocks for a Recovery?

Here are stocks of some companies that might be helped by President Bush’s economic stimulus proposals. Also shown are the companies’ estimated 1992 earnings per share and the stocks’ price-to-earnings ratios based on those estimates.

Thurs. ’92 est. ’92 Stock close EPS P-E* Brunswick $15 1/4 $0.89 17 Emerson Electric 55 1/8 3.10 18 GE 76 1/2 5.50 14 Granite Construction 32 3/4 2.01 16 Honeywell 73 1/8 5.15 14 IBM 91 3/4 7.42 12 Kasler 12 3/8 0.70 18 Kaufman & Broad 22 1.43 15 Ryland 27 3/4 1.80 15 Standard Pacific 13 1/2 0.92 15 S&P; 500 411.63 24.50 17

‘92 P-E is stock price divided by analysts’ 1992 consensus earnings per share estimate, compiled by Zacks Investment Research