Making money gets harder Opportunities await those who find them, investors are told

Stock market

August 06, 1998|By William Patalon III | William Patalon III,SUN STAFF

Tuesday's stock market plunge underscores that the easy money is off the table, stock market watchers say. While automatic-pilot index funds racked up gains that were hard to beat over the past few years, profiting now will take an shrewd investor who is willing to search out bargains and is committed enough to a long-term investment plan not be spooked by gloom-and-doom prognostications.

"Turn off the television and stop reading the financial press," said Michael Metz, chief investment strategist for CIBC Oppenheimer in New York City.

"Invest for the long term" and don't veer from a well-conceived plan, he said.

Individual investors should avoid stocks on the "new highs" list, he said. "They should be looking at those making new lows -- those stocks that have definitely already experienced protracted bear market."

And stick mainly to the U.S. market, he advised, although some diversification into Europe and even Asia might be shrewd now.

Too often, investors want to buy only after a stock or a market has risen steeply.

"The Asian market has already discounted Armageddon," Metz said. "When it's doubled in price, then people will start looking at it" even though they should look to invest there now, he said.

To make money in today's market, investors will have to pick specific market sectors or stocks instead of buying index funds that mimic broad averages such as the Standard & Poor's 500, said David Straus, senior portfolio manager for the Washington-based J. L. Capital Management, a subsidiary of brokerage Johnston, Lemon & Co.

"Index funds will have more of a struggle over the next three, five or 10 years," he said.

Straus advised looking at companies whose shares were beaten down months ago by earnings disappointments or fears about their businesses in Asia. Those kinds of stocks are the most likely to surge when the markets rebound or the companies report good news. One example is Oracle Corp., a large software company whose shares dropped this year after it warned of sluggish growth. It is a market leader, and the stock holds much promise, Straus said.

James Hardesty, president of Baltimore-based Hardesty Capital Management, which controls about $400 million for clients, said investors who try to "time" the market by jumping in and out of stocks might get burned.

By missing the 30 best days of the 16-year bull market, an investor would have an annual return dropping from 17 percent to 5 percent, Hardesty said. It is much better to be a long-term investor and look for opportunities, he said.

Energy-related and oil-service stocks have been pounded, primarily because of the drop in the price of oil. But Hardesty believes those sectors hold promise. "I don't think we've seen the last snowstorm in Baltimore," he joked.

Small-capitalization stocks -- usually defined as companies with market values of less than $1 billion -- have been hit harder than the blue chips, and many are undervalued, Hardesty said. Investors might profit from that through small-cap mutual funds.

Technology, too, offers potential, Hardesty said, pointing to Corning Inc., the biggest maker of fiber-optic cable used in telecommunications networks. Corning's stock price has fallen by more than half over concerns about falling Asian demand.

Areas he would be leery of are pharmaceutical and Internet stocks. Both have had great runs and might be overvalued, he said.

Peter Canelo, the U.S. investment strategist for Morgan Stanley Dean Witter in New York City, thinks the market will be lackluster for the rest of the year, then spurt to 10,000 in 1999.

Meanwhile, bargains abound, Canelo said. Deere & Co., a maker of farm equipment, and Boeing Co., the world's largest producer of airliners, are examples. Fear that the Asian crisis would take the steam out of sales has hurt the stocks of both companies. And oil-service stocks are so inexpensive that heavy takeover activity is likely, Canelo said. "These prices are ridiculous," he said.

Advice from the professionals

Michael Metz

CIBC Oppenheimer

Advice: Ignore short-term bumps

Look at: Utilities, energy stocks, Asia

James Hardesty

Hardesty Capital Management

Advice: Don't "time" the market

Look at: Energy, oil-service and small-cap stocks David Straus J. L. Capital Management

Advice: It's a stock-picker's market

Look at: Stocks that fell months ago

Peter Canelo

Morgan Stanley Dean Witter

Advice: Dow will hit 10,000 in 1999

Look at: Deere, Boeing

Pub Date: 8/06/98

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