You can learn from a rally

Donald Saltz

January 03, 1992|By Donald Saltz

The stock market in the last few days of 1991 rallied as never before, catapulting the Dow Jones industrial average and other indexes to new highs despite a continuing pall on the economic front.

Stocks that have gained in value during this rally are not necessarily the ones to have, because the spirit of the rally envelopes practically everything. However, stocks that have gone up little or not at all are probably ones worth avoiding, for now at least.

The rally even touched depressed banking stocks that had been under selling pressure for tax purposes. Some of those gains may seem to be moderate but they are a sign of life in a struggling industry.

Mercantile Bankshares of Baltimore rose 2 1/2 points to 28 during Christmas week and moved up some more this week, a strong gain for a banking stock but conservative Mercantile is an exceptional representative of that industry.

However, shareholders of MNC Financial finally had some cheering market results -- its share price rose from 3 7/8 to 4 1/2 last week, and gained more since. This share price increase for the bank holding company was a welcome sign of a rekindling of public interest in the stock.

Another battered stock that showed signs of life during the Christmas week rally was USF&G Corp., up from 5 7/8 to 6 3/4 , then rising again this week. This pickup for USF&G, which has sustained heavy losses, must have brought some joy to management at the Light Street office.

The stock of two Columbia-based real estate firms, both major builders, last week reacted differently during the rally. The Ryland Group, one of the largest home builders in America, gained from 17 3/4 to 22 1/2 as hope returned for the home building industry.

The Rouse Co., a commercial developer, actually fell 1/4 during the week, to 14 3/4 , but this past Monday it shot up 2 1/2 points in heavy trading.

Meanwhile, Ryland continued its advance by moving above 24. The share price gains for these different categories of builder suggests an investor belief that the economy is near recovery.

What happens is that certain stocks do so well that they may appear to be fully priced, at least temporarily, so the pendulum swings to shares of struggling companies as better values, by comparison.

The Marriott Corp. ended Christmas week down 3/8 to 14 1/2 , although it rose fractionally since. Marriott, based in Bethesda and once a high-flier whose growth brought fortunes to many investors, has been in the doldrums for many months as its share price receded. Many longtime Marriott shareholders may have been shocked when the shares failed to respond to a great market rally. Real estate loans have led to money problems for the firm.

Hechinger Co. shares didn't go anywhere, either. This large Landover-headquartered home improvement store retailer finished last week at just over 10, rising only a small fraction for each of the two classes of shares. Despite the sharp market rally, Hechinger shares were actually under their level of several weeks ago. The company's earnings have been weak.

The Black & Decker Corp. of Towson also has sluggish earnings, but during the rally its share price exhibited strength. B&D rose to 16 7/8 from 15 1/4 , and this week it went above 17 to near its high for the year.

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