Despite Wall Street Boom, Investment Companies’ Stocks Are Down in Price : Securities: Analysts blame rising interest rates, along with the memory of brokerages peaking early in past bull markets.

Although Wall Street is booming these days, you couldn’t tell it from the action in most securities industry stocks.

Shares of the leading publicly traded investment firms have fallen 15% to 30% lately from the record highs they reached last year.

That puts their prices at miserly ratios as low as six, seven or eight times the firms’ most recent 12 months earnings.

Take the case of Merrill Lynch, by far the biggest firm on the Street and a company that recently reported a record profit of $1.36 billion for last year, representing a gain of better than 50% from a very healthy 1992.

Its stock, which was split 2 for 1 in late ‘93, recently traded around $43, down from an adjusted high of $51.125 last fall. It is going for just seven times Merrill’s 1993 earnings per share of $5.98.

“At that multiple, the market appears to be saying that one of the decade’s most powerful themes is being valued on the basis of a commodity cyclical whose earnings are in the process of peaking,” says David Shulman, investment strategist at Salomon Brothers Inc.

The prevailing view among traders in brokerage stocks seems clear: After a big run since 1990 in their earnings and stock prices, the securities industry has about had it for this business cycle.

That inference isn’t drawn from the underwriting calendars of investment bankers, which are still bulging with deals on the heels of a blockbuster year in 1993.

Instead, analysts say, it derives partly from the upswing in interest rates since last fall, and partly from memories of past bull markets in which brokerage stocks peaked very early in the game.

If interest rates are headed for a sustained rise, they could squeeze brokers’ profits in a variety of ways--for instance, by shrinking opportunities for profits on the firms’ bond trading desks, and perhaps by slowing the growth of the mutual fund business.

At the same time, experience has taught many investors to treat securities industry stocks as hot potatoes. By way of illustration, the high point for Merrill’s stock in the 1980s came in 1983, scarcely a year after the bull market began.

But some observers argue that people who keep to that trading mentality may be missing a bet this time.

“If U.S. investment banks were tied solely to the U.S. market, then the end of the bull market in U.S. bonds might well signal the end of the upward trend for these stocks,” says Steven Eisman, an analyst at Oppenheimer & Co.

“However, over the past few years, select firms have become the most powerful worldwide distributors of financial products. Such firms wield strong franchises not only in the U.S., but in Europe and emerging markets as well.

“Opportunities in Europe and emerging markets should lengthen this profit cycle.”

Then, too, there is the much-proclaimed shift among Americans in the 1990s away from spending and toward saving as the population ages. If this purported trend is actually happening, brokers would stand to reap long-term benefits.

In Shulman’s view, however, the recent pressure on Merrill and other brokerage stocks is not to be dismissed so quickly.

“If it (Merrill Lynch stock) does not rally soon,” he says, “the message it is sending is especially ominous.

“Stated bluntly, if Merrill Lynch is priced right, then the Standard & Poor’s 500 index is expensive. Alternatively, if the S&P; 500 is right, then Merrill Lynch is cheap at current levels.”