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Stock Pickers' View of '87 Is Mostly Bullish

January 02, 1987|BILL SING | Times Staff Writer

What you probably really want to know about the new year is how you can make money.

So The Times sought out research directors at five Los Angeles-based brokerage houses for their favorite stock picks and their forecasts for the overall market. Results, of course, are not guaranteed.

Specifically, The Times asked for predictions of the high, low and close of the Dow Jones average of industrial stocks for this year and for the names of 10 stocks that they believe will perform well during the year.

Next year at this time, The Times will check to see how these stock pickers fared. Last year's suggestions from the three analysts who participated both this year and last were somewhat less than impressive. They generally were bullish on technology stocks, which fared particularly poorly.

FOR THE RECORD
Los Angeles Times Saturday January 3, 1987 Home Edition Business Part 4 Page 2 Column 1 Financial Desk 7 inches; 229 words Type of Material: Correction; Poll or Survey
In Friday's Business section, one table showing an analyst's favorite stock picks in 1985 and how those stocks performed during 1986 was misplaced. The predictions attributed to Gregory H. Kieselmann of Morgan, Olmstead, Kennedy & Gardner were actually made by Robert M. Hanisee of Seidler Amdec Securities. Kieselmann did not participate in a Times survey at year-end 1985, although he did pick his favorite stocks for 1987. The following chart lists Hanisee's 1985 predictions and the stocks' performance during 1986.
Stock Open High Low Close Consolidated Stores (discount retailing) NYSE 7 3/4 23 5/8 7 3/8 13 1/2 El Torito Restaurants (restaurants) NYSE 12 5/8 20 1/2 10 5/8 20 Gull (aircraft instruments) Amex 15 3/8 16 7/8 9 1/2 13 3/4 IRT (inspect. & control equip.) Amex 9 1/2 14 5 6 1/8 Micro Mask (electronics) OTC 6 1/2 7 1 7/8 3 1/8 Nu-Med (hospitals) OTC 7 5/8 9 6 6 Optical Radiation (optical products) OTC 29 32 14 17 1/2 SFE Technologies (electronic components) OTC 7 3/8 10 2 5/8 3 5/16 Sound Warehouse (music retailing) OTC 22 1/2 31 1/8 13 1/2 13 7/8 Tech-Sym (diversified electronics) Amex 13 7/8 19 12 1/2 14 1/2 Total average return
Percent Stock Change Consolidated Stores (discount retailing) NYSE +74.2 El Torito Restaurants (restaurants) NYSE +60.4 Gull (aircraft instruments) Amex -10.6 IRT (inspect. & control equip.) Amex -35.5 Micro Mask (electronics) OTC -51.9 Nu-Med (hospitals) OTC -21.3 Optical Radiation (optical products) OTC -40.2 SFE Technologies (electronic components) OTC -55.1 Sound Warehouse (music retailing) OTC -38.3 Tech-Sym (diversified electronics) Amex +4.5 Total average return -11.4
GRAPHIC-TABLE: FOR THE RECORD

Most of the analysts polled are at least moderately bullish on this year, with two expecting the Dow Jones average of industrial stocks to hit 2,500 from its year-end closing of 1,895.95. They also see the fruits of the bull market spreading from blue-chip stocks to the more speculative stocks of smaller growth companies, generally traded over the counter. They in particular like stocks in technology, health care, financial services and energy.

WERNER E. KELLER

Bateman Eichler, Hill Richards

1987 Dow Forecast

High: 2,500

Low: 1,850

Close: 2,350

1987 Stock Picks:

Cybertek Computer Products (software) OTC

D.H. Technology (computer printer heads) OTC

Diagnostic Products (medical test kits) OTC

GlenFed Inc. (savings and loan) NYSE

Maxicare Health Plans (health maintenance organization) OTC

Owens-Corning Fiberglas (building materials) NYSE

Rykoff-Sexton (food service) NYSE

20th Century Industries (insurance) OTC

Vendo Co. (vending equipment) NYSE

Westcorp (savings and loan) OTC

A stronger-than-expected economy and robust gains in corporate profits should lengthen the bull market, Keller predicted. This year "could be the year we've been waiting for in stocks," he said, noting that the failure of the market to take a long-term tumble after the Ivan F. Boesky insider trading scandal and President Reagan's Iranian arms controversy indicates underlying confidence in stocks.

Among specific stocks, Keller likes 20th Century Industries, which provides auto and homeowners insurance for low-risk clients. He expects the firm to enjoy annual earnings and revenue growth of between 25% and 30% during the next three to five years.

Keller also likes Owens-Corning Fiberglas because of its "explosive earnings potential" following a restructuring under which it is selling underperforming divisions to reduce debt. He expects Maxicare, the nation's largest publicly traded health maintenance organization, to benefit from consolidation in the HMO industry.

Results of 1986 Forecast:

High: 1,750, off by 206 points

Low: 1,500, off by 14 points

Close: 1,650, off by 246 points

GREGORY H. KIESELMANN

Morgan, Olmstead, Kennedy & Gardner

1987 Dow Forecast

High: 2,500

Low: 1,900

Close: 2,200

1987 Stock Picks:

American Medical International (hospital management) NYSE

Barris Industries (entertainment) OTC

Caesars World (gaming) NYSE

Caremark Inc. (home health care) OTC

Great Western Financial (savings and loan) NYSE

MCA (entertainment) NYSE

PS Group (air transportation, real estate, oil and gas) NYSE

Texaco (energy) NYSE

Wickes Cos. (diversified retailing) Amex

(Only nine stocks were picked.)

Continued low interest rates and inflation will spark a continued bull market, Kieselmann said. "These are the factors that created the bull market all along," he said. Another positive for stocks is the relatively low yields of alternative investments such as Treasury bills, he said. However, one negative factor is that the bull market is getting old, having been around since 1983, he said.

As for specific stocks, Kieselmann favors Barris Industries, a producer of television game shows, because "game shows are a hot item again in terms of viewer interest." PS Group is attractive as an asset play, he said, as it will be loaded with cash after selling its PSA airline unit to USAir and after other possible asset sales.

Caesars World will gain market share as a result of upgrading its gaming operations in Nevada and Atlantic City and will produce 20% annual gains in earnings and revenues during the next three to five years, he predicted. Great Western has been aggressive in reducing its exposure to fixed-rate loans and is cheap relative to other savings and loan stocks, he said.

Results of 1986 Forecast:

(Morgan, Olmstead did not participate last year)

STEVEN B. REID

Wedbush, Noble, Cooke

1987 Dow Forecast

High: 2,150

Low: 1,700

Close: 1,950

1987 Stock Picks:

American Medical International (hospital management) NYSE

Beeba's Creations (women's apparel) OTC

Beverly Enterprises (nursing homes) NYSE

Caremark (home health care) OTC

Cimco (plastics) OTC

Comarco (defense software technical services) OTC

HealthVest (real estate investment trust) Amex

International Lease Finance (airplane leasing) OTC

Optical Radiation (opticals) OTC

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