What stocks to buy for '97

Black Enterprise, Oct, 1996 by Caroline M. Brown

The bull may be out of steam. But now's the time to grab it by the horns and hang on. Here's our expert panel's pick of the hottest stocks for the new year.

As Americans celebrated the Fourth of July with fireworks, the market experienced a different explosion. The Dow Jones industrial average dropped 115 points, and investors scurried about in a panic claiming that the sky was falling.

While the market didn't come crashing down, July did end up as the worst month of the '90s bull market. It was clear that the bull wasn't going to let the bear come out of hibernation for any length of time just yet. But investors would have to brace themselves for a little bucking as the market rose and then dropped a number of points--sometimes within a matter of days.

During the July doldrums, BLACK ENTERPRISE convened a roundtable of five investment brokers: Baunita Greer, president, Cromwell, Miller & Greer Inc.; Ron Scott, president and CEO, Nubian Asset Management; Richard Garriques, equity portfolio manager, Bond, Procope Capital Management; Lemuel Daniels, first vice president, Merrill Lynch; and Barbara Bowles, president and CEO, The Kenwood Group.

BE asked the pros to share their take on the market, and to give some specific stock picks for the long term. Despite a fascination with market timing, advisers agreed that the best strategy is to keep or put your money in stocks and ride out the market cycles.

BE: Are we going to be faced with a bear market now that the bull has retreated slightly? What can we expect with regard to inflation? Will the Fed raise interest rates?

BAUNITA GREER: No, I don't think that we'll be faced with a bear market. The market is fueled by strong companies' earnings and due to cost-containment measures, these earnings will remain up during the last half of 1996. Also, historically, a presidential election year ends with a bull market.

With respect to inflation, as recently reported, the unemployment rate is low, and generally when the unemployment rate is low, inflation rises. I think, however, that inflation will remain level because many people--though employed--have less disposable income. Some people who were unemployed for six to 12 months have accepted positions at considerably over salaries.

BARBARA BOWLES: In general, I think that since Federal Reserve Chairman Alan Greenspan has been reelected, there will be another increase in interest rates, probably in October. I expect that there will be a roughly 50 basis points rise between now and the end of 1996.

On the other hand, if you look at what the Republicans want, which includes affordability, we may not get that either. So, there are a number of crosscurrents that are taking place from an economic point of view. I think Baunita is right. The level of unemployment is not the real factor, it's the wages people are making. Their wage level has come down, although we're finally beginning to see some pickup in wages from those low levels. All of this suggests to me, once again, that we'll probably get another interest rate rise.

LEMUEL DANIELS: Historically, low inflation is about 2% or 3%. For this year alone, it's been about 4. 19%. I think we're all going through a very cautious, fine-tuning type of phase. The hourly wage figure went up 8/10% last month. The loan bond rate right now is 7. 19%. I do think the Fed is going to increase the rates. They have no choice based upon the numbers we're getting. I wouldn't be surprised if we see an inflation number which will be described as new inflation.

RICHARD GARRIQUES: What concerns me regarding the stock market is that since January we've had interest rates move up over 1%, as measured by the long-term bond rate--I'm not sure that this has been priced into the stock market. I think we may have a slight uptick in inflation. Going forward, the market is going to be very volatile. It will seem to most of us as if we spent the first six months making our money, only to spend the next six months trying to hold onto it.

BE: Is it the general belief that the market is going to be slow in the second half of the year?

BOWLES: We've had a very long bull market. Depending on how you define the bull market, it has either gone from 1980 to 1996, or it started in 1987. Either way, it's been one of the longest bull markets in history. And typically, the reason bull markets can last a long time is that you have relatively low inflation or declining inflation, relatively low unemployment or increasing employment, and good growth in the economy. We have had all of those things, some of which are coming to an end.

Up until now, the equity market has really been the only game in town. Some people still expect that it will be the only game in town, because the bond market has underperformed during the last three years. You have to question whether or not that's the market that people will move back into. Nobody is quite ready to go into real estate, and the international market hasn't been the panacea that we've all talked about. So, we may have a correction that's mild.