Three security analysts urge investors to scale back expectations

January 15, 1993|By David Conn | David Conn,Staff Writer

Stock market investors have already seen that the 1990s are not turning out to be nearly as hospitable as the previous decade. But there are still ways to make money, according to investment managers who spoke at an annual investing luncheon yesterday, as long as investors don't follow the crowd into popular stocks and industries.

NB That might mean shying away from most U.S. stock sectors, said

the three panelists at the Baltimore Security Analyst Society's 1993 investment outlook at the Stouffer Harborplace Hotel.

"For the '90s, you should lower your expectations," said Howard "Pete" Colhoun, a partner with Emerging Growth Partners, a Baltimore venture capital firm and a frequent panelist on public television's "Wall $treet Week."

More than anything else, Mr. Colhoun said, the 1980s stock market boom was sparked by a sharp drop in interest rates after the start of the decade, an event that simply cannot recur now, given today's low interest rates.

He said that the 17.5 percent annual return of the S&P 500 over the past decade would fall to about 7 percent a year for the coming years.

Without mentioning specifics, Mr. Colhoun said selected growth stocks would continue to outperform the broader markets. But his advice was to switch to real estate.

Gordon Croft, a T. Rowe Price & Associates alumnus who founded the Leominster Inc. investment firm, also warned investors not to expect a repeat of the 1980s, when "you could about throw darts and get 16 or 17 percent in long bonds or stocks."

But he eschewed Mr. Colhoun's growth stocks in favor of value investing, a strategy that seeks out stocks with low price-to-earnings and price-to-book ratios. Cyclical companies, for example, have been so hard hit in the past three years that they are worth investing in now, Mr. Croft said.

Anthony Hitschler, of Brandywine Asset Management in Wilmington, Del., echoed Mr. Croft's emphasis on value investing, but he found less hope in a stock market that, he said, is overvalued.

"The market, I think, is dangerously overpriced," he said. The price-to-earnings ratio of the S&P 500 is about 20 now, compared with 8 about a decade ago.

Still, he said, some sectors, including commercial banks, hold value. Even though their stock prices are a bit high, Mr. Hitschler said, there is little downside risk for banks.

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