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To: Anthony Wong who wrote (952)	10/22/1998 2:29:00 AM
From: Anthony Wong	Read Replies (1) \| Respond to of 1722

SunAmerica's Gannon Buying Bank, Drug Shares: Bloomberg Forum Bloomberg News October 21, 1998, 6:33 p.m. ET New York, Oct. 21 (Bloomberg) -- The slide in U.S. stocks in recent months offered an opportunity to buy shares of fast- growing drug and regional bank companies such as Pfizer Inc. and Fleet Financial Group Inc., said SunAmerica Asset Management's Francis Gannon. Regional banks are benefiting from the Federal Reserve's two reductions in short-term interest rates, while drug companies are posting gains in sales volume thanks to new products, Gannon told the Bloomberg Forum. The U.S. is likely to avoid a recession, meaning corporate profits will continue to grow and the market will head higher, he said. ''We might be able to look back upon this year, at the 7400- 7500 level (on the Dow Jones Industrial Average), as a great level to invest money in the market,'' said Gannon, who oversees $1 billion as head of large-capitalization stocks for SunAmerica. While many companies can't raise prices to boost revenue, drug companies can notch higher sales -- and 20 to 30 percent earnings growth -- by releasing new products, he said. Some of the drug stocks are expensive as measured by the price-to-earnings ratio. When they drop, Gannon buys. He bought Merck on Aug. 31, when it slumped 8.9 percent and the Dow industrials fell 6.3 percent. Gannon also added to his holdings of Pfizer recently, and owns shares of Warner-Lambert Co. and Schering-Plough Corp. ''Top-line growth is something we really have to focus on in this market because that's just pure growth,'' he said. ''The earnings growth can be manipulated on the way down.'' Gannon bought shares of Fleet and First Union Corp. last week when the Fed cut rates for the second time in a little more than two weeks. ''They're going to be able make more money in this environment,'' he said. ''You're going to see some of their net interest margins expand again instead of contract as we saw over the last couple of quarters. ''You also have the possibility of further consolidation as well, and if nothing does happen, you still have 14-15 percent growers in the meantime.'' Lofty Expectations Corporate earnings overall should rise about 5 percent in 1999, Gannon said, with the economy growing at about 1.5 to 2 percent -- slower than recent years, yet respectable numbers given that the U.S. is in its ninth year of economic growth. Analysts who follow the companies in the Standard & Poor's 500 Index expect them to post growth in operating earnings of 19.2 percent next year, according to First Call Corp. Gannon considers those assumptions overly optimistic, but he's not too troubled by them. ''What you've seen every quarter this year has been expectations coming down as the quarter progresses, and then the market reacting positively (when companies beat) the new, lower expectations, which is what I think you see going on right now in the marketplace,'' he said. Gannon's portfolios include the SunAmerica Balanced Asset Fund, which is 64 percent invested in stocks, 30 percent in fixed- income securities and 6 percent in cash. He cut the equity weighting as low as 58 percent over the summer as the market slid from the record highs set in mid-July. ''Clearly, with the Fed getting involved on a more proactive basis last week, what you are going to see is you have established a kind of a bottom in the market,'' he said. Other additions to Gannon's holdings lately: credit-card companies Capital One Financial Corp. and Providian Financial Corp. He also bought economically sensitive stocks, such as timber company Weyerhaeuser Co. and Aluminum Co. of America. ''A lot of the growth is going to come back to these names in the second half and the beginning of next year'' because of the Fed's rate cuts, he said. --Phil Serafino in the New York newsroom (212) 318-2358 /ag