Growth stocks promise gains under Democratic stimulus

Andrew Leckey

November 13, 1992|By Andrew Leckey | Andrew Leckey,Tribune Media Services

Growth company stocks, which historically prosper more under Democratic administrations than under Republicans, are attracting attention and investment money.

Conventional wisdom is that a little economic stimulus and positive psychology goes a long way toward boosting the performance of these aggressive firms, especially the smaller ones.

Battered in the first half of the year, growth stocks made some gains in the third quarter. Lately, many have done even better, based on a hope that positive things will be happening in Washington, sooner rather than later.

For example, as President-elect Bill Clinton meets shortly with economic and business leaders, his proposed investment tax credit for business and his public works proposal will be among ways discussed to boost the economy.

The tax credit would return 10 percent of a company's investment in machinery beyond a certain level, while the public works proposal would enact $20 billion in new spending on projects next year.

"Incentives could make a difference, and the investment tax credit would help some industrial companies," observes Susan Hirsch, senior vice president with Shearson Lehman Brothers, whose goal is to find stocks with a 15 to 25 percent sustainable growth rate. "My concern, however, is that under Clinton not only growth rates, but interest rates, may rise."

Some firms that the tax credit would help, Hirsch believes, include Kaydon Corp. in industrial bearings; the Safety-Kleen auto parts cleaning service; the A. Schulman plastics manufacturer; and Watts Industries, a marketer of water and steam valves.

An expansion of government agencies would boost the need for computer software firms such as American Management Systems, Hirsch adds. Other winners in the information field are Equifax Inc., providing financial services, and Fiserv Inc., which works with bank data processing.

"The change in administration means a change in psychology, and growth stocks will be a good place to be," says Matthew Patsky, growth stock analyst with C.J. Lawrence. "I believe long-term bond prices will be below 8 percent, making growth stocks even more attractive."

Consumers may be more confident, Patsky contends, and that should be good for Phillips-Van Heusen, which supplies shirts and other apparel to outlet stores and department stores; and Kmart, a major player in the discount field. In technology, he recommends Microsoft Corp. and Novell Inc.

If 37 million Americans now without health insurance will be qualifying for coverage in the future under proposed changes, more money will be spent in health care, says Patsky. Favorite stocks are Quantum Home Resources, providing home infusion treatment of hemophiliacs and other patients, and Value Health, a managed company providing prescription needs.

"Many small companies, among them the cyclical firms that make items such as audio speakers for homes, will benefit from incentives for capital spending," says Joel Tillinghast, portfolio manager of the $1.1 billion-asset Fidelity Low-Priced Stock Fund, up 18 percent this year.

One stock that would benefit from increased road construction is Quixote Corp., which manufactures highway barriers used in traffic control, says Tillinghast. Meanwhile, Baldwin Piano & Organ is a consumer cyclical whose manufacturing costs are down due to lower short-term interest rates. Lattice Semicon ductor makes programmable logic devices for personal computers.

"We made money under Carter, Reagan and Bush, so, unless Clinton really kills the golden goose and raises taxes on small companies, we'll make money under him, too," says Charles Allmon, president of the 28-year-old Growth Stock Outlook investment letter, P.O. Box 15381, Chevy Chase, Md. 20725, which has a $195 annual subscription price.

Wary of the overall market, Allmon has 80 percent of his portfolio in cash. Favorite growth stocks are Bristol-Myers Squibb, the pharmaceutical giant that has no debt and is selling off divisions; Marion Merrill Dow in ethical drugs; St. Jude Medical in heart valve devices; and American Insurance Group.

In health care, Hirsch's recommendations are United Healthcare, manager of health maintenance services, and Policy Management, a firm that makes computer software.

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