Good buys in tough times

Donald Saltz

April 10, 1992|By Donald Saltz

The stock market has been selling off sharply. Even on some days when the most-watched indicator -- the Dow Jones industrial average -- has gained, more stocks were down than were up. Weakness in prices can be attributed to uncertainty about the recession and our nation's economy and, hence, corporate profits, as well as a malaise among investors and the public.

Despite this, investors should always keep close tabs on the stocks they like and might want to buy later, if not now. A lot of stocks are worthy buys right now for the longer term; the problem is that these stocks might decline further because of the economy's sluggishness and the trend of the market.

Bank stocks have appeal as the industry appears to have moved beyond its low point. Earnings reports might not be too positive yet, but they're the results of what occurred months ago. The poor real estate loans are no longer being made, and the future is brighter simply because of banks' new conservativeness.

A large banking firm to watch is the new NationsBank Corp., a recent combination of NCNB of North Carolina and C&S/Sovran. NationsBank, with headquarters in Charlotte, N.C., has more than 1,800 offices nationwide, including dozens throughout Maryland. With assets of more than $110 billion, it's the fourth-largest bank holding company in the United States.

The merger is expected to create savings of about $400 million annually within a couple of years, amounting to about $1.70 a share before taxes.

NationsBank earned only 76 cents a share last year, but income would have topped $2 a share if restructuring hadn't occurred.


Investment opportunities also are coming from foreign lands. One of them is Grand Metropolitan, with headquarters in England but a major business player throughout the United States. The company is the parent of Burger King restaurants and its many products include Pillsbury, Green Giant, J&B Scotch and Almaden. It even owns the Pearle Vision centers.

The stock is sold in the United States through American Depository Receipts, each worth two Grand Metropolitan shares. The company is splitting its shares 2-for-1, giving the ADR's a value of four Grand Met shares each.

This stock has a modest price-earnings ratio of 13 and a strong upward sweep of annual earnings, as well as a yield of 3.5 percent. Its share price has declined in recent weeks from $34 to less than $30, but that's had nothing to do with the company's progress.

* Moving to local companies, there's Penril Datacomm Networks of Gaithersburg. Penril is largely a data communications business, manufacturing high-speed modems as well as switching equipment, network management systems and electronic equipment for the military.

Penril's earnings have been rising sharply since restructuring five years ago. Last year's earnings of $1.01 a share gave the stock a P-E of between 7 and 8. For years, Penril did not pay a

dividend. However, it recently instituted a small one of 2 cents a share quarterly. This is a display of confidence more than anything else.

All of these companies seem likely to grow in this and future years even if the recession lingers. Their share prices might decline -- as usually occurs during a general falloff in the stock market -- but that would only make them better buys.

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