Sam-Could this be why only 1mil traded today? Didn't see IOMG on the list. I wonder why?
Hugh Johnson, chief investment officer at First Albany Corp. of
Albany, N.Y., is still bullish about the U.S. equity market, even
though he sees some early signs of problems.
His advice is to choose companies with earnings estimates
comfortably higher for 1997 than 1996.
``There are some worrisome factors surrounding the equity market,
but these are not yet in an advanced or alarming stage,'' Johnson
says.
For a start, he says, there is pressure on U.S. wages. Also, the
U.S. Federal Reserve Board is thinking of raising short-term
rates. The outlook for the U.S. economy is positive, but not
glowing.
There also are signs of some speculation in the market in that the
flow of funds by individuals into equity mutual funds has
strengthened again.
Above all, there is the danger that U.S. corporate profits in 1997
will be lower than in 1996. Johnson says investors have been
sorting through companies, favoring those likely to produce profit
increases in 1997, as opposed to those in which earnings will be
flat or reduced.
This differentiation is most sharply drawn in technology stocks,
``where there is a flight to companies where estimates for 1997
are being revised higher than the 1996 estimates and a flight from
companies where estimates are being revised lower.''
Johnson, who is positive on the technology sector in the long term,
warns that the sector as a whole could be due for a correction in
the short term.
``The stocks have fully discounted all of the acceleration in
spending on computers and peripherals that lies ahead for the next
four quarters and are no longer cheap,'' he says.
Since the end of June, for example, the Dow computer stocks are up
18% and the semiconductors up 39%.
If investors choose to ride out the expected correction, Johnson
says, it is best to choose high-quality stocks in which the
earnings estimates are still going up.
``In the short term, do not bottom-fish among companies whose
earnings estimates are going down.''
The stocks that he would buy after his expected correction or hold
on through it are:
- Intel Corp. (INTC/NASDAQ), which closed recently at US$105 1/2
and has traded in a 52-week range of US$114 1/4 to US$49 3/4.
Based in Santa Clara, Calif., the company designs microcomputer
components and related products for sale worldwide.
- Microsoft Corp. (MSFT/NASDAQ) US$132 1/2 (US$139 1/8-US$79 7/8).
The Redmond, Wash., giant develops, makes, licenses and sells
software products worldwide.
- Cisco Systems Inc. (CSCO/NASDAQ) US$61 1/4 (US$67-US$31 7/8).
This San Jose, Calif.-based company develops, markets and supports
multi-protocol internetworking systems that enable customers to
build large-scale computer networks.
- 3Com Corp. (COMS/NASDAQ) US$62 3/8 (US$68 1/2-US$33 1/2).
The Santa Clara, Calif., firm designs and produces a broad range
global networking products.
- Dell Computer Corp. (DELL/NYSE) US$82 (US$88 3/4-US$23).
Based in Austin, Tex., Dell designs and makes personal computers
for the international market.
Johnson would avoid the following stocks, which he says ``do not
have a strong profit outlook for 1997 and which are also not
cheap'':
- Hewlett Packard Co. (HWP/NYSE) US$46 1/4 (US$57 5/8-US$36 7/8).
Palo Alto, Calif.-based HP designs and manufactures computers.
- Motorola Inc. (MOT/NYSE) US$48 1/4 (US$68 5/8-US$46 3/4).
Schaumburg, Ill.-based Motorola produces wireless communications
equipment, semiconductors and advanced electronic systems.
- LSI Logic Corp. (LSI/NYSE) US$25 1/4 (US$50 1/2-US$17 1/8), a
Milpitas, Calif.-based company that makes and markets
application-specific integrated circuits, microprocessors, chips
sets and graphics boards.
- Advanced Micro Devices Inc. (AMD/NYSE) US$17 3/8 (US$28 1/2-US$10
1/4). Based in Sunnyvale, Calif., this firm designs and makes
integrated circuits for telecommunications, office automation and
networking applications.
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