It May Be Time for Acquiring Quality Stocks

“The stock market is too crazy. Nothing looks cheap. Everything is dropping. It’s impossible to pick the next big winners. The economy is awful. The presidency is up for grabs. The dollar is sliding.”

Sound familiar? People have had a million and one reasons to avoid the stock market this summer, and the decline in prices in recent weeks has just worsened the gloom over Wall Street.

“I think the air has become extremely heavy,” says Robert Bissell, investment manager at Wells Fargo & Co. in Los Angeles. Instead of looking ahead, he says, many investors have become obsessed with the minute-by-minute market and economic news--though most of that will have little bearing on the fates of individual companies over the next few years.

Investors “are now down to worrying about this quarter’s (corporate) earnings estimates and whether the companies will be off by a penny or so,” Bissell says. That’s kind of nuts, he adds.

Generally, the time to buy stocks is when other people are giving them away at relatively cheap price-to-earnings ratios. At least, that’s the time to buy high-quality companies whose businesses are fundamentally sound and virtually certain to grow in the long run.

How many times have you looked at a stock’s 52-week high and low in the newspaper and wondered, “Why didn’t I buy at the low?” You didn’t because the market backdrop at the time probably was so depressing, it seemed certain the price would fall further.

In the accompanying chart are 11 big-name stocks that some money pros believe represent good value right now. Most of these issues have already dropped sharply from their 1992 highs on fears that a continuing weak economy will mean limited 1993 profit growth or none at all.

If the market collapses this fall, these stocks probably will go with it. But if you can look out nine to 12 months--and envision an economy even slightly better than today’s--it’s easy to see why stocks like these should pay off: They’re now very reasonably valued compared to the market benchmark Standard & Poor’s 500 index, and they have excellent franchises in their respective industries.

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Take Boeing Co., for example. The stock has spiraled down from a 1992 high of $54.625 to $37.375 now, as beleaguered airlines have postponed jet purchases. “Every time another airline decides to cut back, wham!--there goes the stock,” notes Charles Brandes of money manager Brandes Investment Management in San Diego.

But he is thrilled to buy Boeing at these levels, Brandes says, because the firm still has a four- to five-year backlog of plane orders. “And if you take a long-term view, Boeing is going to sell a lot more planes eventually,” he says, once airline profitability returns and modernization programs resume.

Brandes also has been buying Salomon Inc., the once scandal-ravaged brokerage giant now on the mend. The stock sells for an extremely low price-to-earnings ratio because earnings can be volatile, given the nature of the brokerage business.

But Brandes believes that Salomon’s annualized earnings power over the next few years may be as much as $10 a share. If he’s right, the stock’s potential is dramatic.

Similarly, Brandes favors oil titan Elf Aquitaine as an energy play. The largest company in France, Elf is 61% owned by the French government, which scares off some investors, Brandes says--even though the government has nothing to do with day-to-day management.

Elf has major exploration and refinery projects in the works from Kazakhstan to Qatar, all of which should translate into healthy long-term growth. The company also was chosen to modernize eastern Germany’s service-station network. Yet the stock has failed to keep pace with the rally in U.S. oil and gas stocks this summer, and its dividend yield even after French taxes is higher than the yields on most big U.S. oil stocks.

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If you’re still hunting for a cheap way to play U.S. natural gas--a market that has been bolstered by strong demand and rising prices--MAPCO Inc. is an interesting company, says Alan Sachtleben, investment chief at American Capital in Houston.

Known primarily as a coal company, Tulsa-based MAPCO is fast expanding its liquid natural gas pipeline business in the Midwest and Rocky Mountain states. Yet the stock trades for a much lower price-to-earnings multiple than many big gas stocks, and is off 8% from its 1992 high.

Meanwhile, Wells Fargo’s Bissell believes that investors who missed buying industrial companies such as Ford Motor earlier in the year, or major banks such as Pennsylvania’s PNC Financial, should be snapping them up as they slump. That’s his strategy now, he says.

His argument: “The economy is going to turn next year regardless of who’s elected (president).” So the stocks that will lead the market in 1993 are the economy-sensitive issues that many people are tossing out today, he says.

Electronics leader Hewlett-Packard merits consideration for that reason, Bissell says. The stock has been sliced from $74 to $55.75 since H-P earlier this month said that the slow economy will mean disappointing near-term earnings.

But at its current price, Bissell suggests focusing on H-P’s strong global franchise in such businesses as laser printers and medical electronic equipment. If you can imagine a healthier world economy a couple years out, H-P should be a beneficiary.

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Among the other potential value names in the accompanying list are Riverside-based Fleetwood Enterprises, the U.S. leader in manufactured housing (it could get an unexpected sales lift from the destruction wrought by Hurricane Andrew); glass and paint maker PPG Industries; General Electric, whose myriad businesses make the stock a proxy for the entire economy; and apparel maker VF Corp. (Lee and Wrangler jeans).

Not many of these stocks will make anyone rich overnight. With most, you might be smart to buy only a little at a time over the next six months, because there’s just as much probability of lower stock prices as higher in that period.

The point is, the only way to make money in a volatile market is to discipline yourself to buy the stocks you believe in as prices drop . The more they drop, the more you should buy, if the companies’ long-term stories are intact. It’s as simple a rule as you can find on Wall Street--and it really works.

Big-Stock Bargains?

If you can take a longer-term view than just the next quarter, some money pros believe that these stocks are likely to pay off over the next few years. Many of the stocks have already slumped sharply this year. Included is each firm’s estimated 1992 earnings per share (EPS) and the stock’s price-to-earnings ratio (P-E) based on those earnings.

52-week Fri. ’92 est. P-E on Div. Stock high/low price EPS ’92 EPS yld. Boeing $54 5/8-36 3/4 $37 3/8 $4.90 8 2.7% Elf Aquitaine 39 1/8-31 1/8 33 3/8 3.10 11 5.7% Fleetwood Enter. 48-25 3/8 30 5/8 2.50 12 3.0% Ford Motor 48 7/8-23 3/8 39 3/4 2.19 18 4.0% GE 80 3/4-62 73 3/8 5.60 13 3.0% Hewlett-Packard 85-44 5/8 55 3/4 4.51 12 1.4% MAPCO 63 3/4-46 3/4 58 7/8 4.79 12 1.7% PNC Financial 55 7/8-33 3/8 49 1/2 4.63 11 4.3% PPG Industries 68 3/8-45 61 3.49 17 3.0% Salomon Inc. 37 3/4-20 3/4 35 5/8 4.85 7 1.8% VF Corp. 49 1/4-30 3/4 47 1/4 3.25 14 2.3% S&P; 500 index 425-375 414.84 23.31 18 3.0%

All stocks trade on NYSE. Earnings estimates are analysts’ consensus figures from Zacks Investment Research.