How business, doctors and journalists prey on your food anxieties I

Ul N 1 1 4 E'7 ~ 1 111 ~`i i i , 11 1 1
THE CONiRpR111N
wiggle-watchers
get whipsawed
I
Davtl Dreman is
chairman of Dreman
Value Management,
L .F . . Investmert
Counsel . New Jersey .
<strong>and</strong> aLthorof The
Nrced be
scads ot supporting statistics, belie .ed the econorm;
%vas cooling rapidly . But then it took onh'
one contradictory indicator-home salesin
above torecast in?vla% to cause long
coming
bonds to drop 2%in a single dat,, equiraient to
almost a 100-point drop in the Dow' Jones
industrial a~erage,
A weelc iaterthe Fed lo~sered the discount
rate a quarter ofa point, <strong>and</strong> the bond <strong>and</strong> stock
markets soared . People who tried to play these
economic numbers oere once again
whipsawed .
There's a lesson here . ENerv investor s~'anu
an "edge," <strong>and</strong> many folks think they can get it
by follo«ing economic indicators . Therein
lies a snare <strong>and</strong> delusion . The market is constantly
bombarded with hot-off-the-wire information
on the c'.?[, the 2r[, the oDr, industrial
production, housing starts-you name it . But
much of the data are preliminan' <strong>and</strong> subject to
rct'ision, <strong>and</strong> scant basis for buving or selling
irnestments . These revisions occur so often
vou'd think imestors, particularly the pros,
would treat them witlt skepticism, but
thev clon't .
Too, the economv has a ti:nnc way of producing
numerous indicators, al! appearing to
substantiate the current trends, «'hieh are
quickls'supcrseded bv new ones pointing the
opprnsite uac . Look baek just ] .8 months . We
have had inflation trends, deflation trends <strong>and</strong>
recession trernis . But each "trend" %%°as shortlnrd,
even though the in@lation/high-interest
"trencd" produced in 1994 one of the +korst
bond markets o[ the centun .
Moral : Don't be a~eiggle-wutcher . Don't
tn• to obav these currents <strong>and</strong> eddies . Don't be
misled by mcre noise
. Even the supposedl}omniscient head of thc Federal Resene, Alan
Greenspan, gace up tI-ving to forecast the direaion
of thc economv tirher% he ran a iucrative
private economic consulting firm . The econome
is a chamcieon : Gchat vou see one moment
nray appear in a~en diflerent color soon atler .
Tlte fac : is that dte <strong>business</strong> cVcle rareIV
moves in a straight line for iong . .An apparent
slosving in the eeonomv ma\be just an inrenton'
udjustment, not the end of the arlical
expansion . Remember : Economists know
~+ith certaint\chetlter we are in or out of a
recessiott onhavear or so after the fact .
So, ~vhat should the investor do? Stop trs°ing
to predict che unpredictable, insulate rourself
against the screaming headlines <strong>and</strong> the
glib ix' nc« sreaders . BuY stocks %ait6 good prospects
that are moderatelv priced in relation to
the rest of the market . Value endures %vhen
trends <strong>and</strong> fads fade .
Here are a number of stocks rhat I think tit
this value description tod .rv .
First Union Corp . (47), the nation's niudllargest
bank, is continuing its expansion plans
with the proposed acquisition of First Fidelity
Bancorp . Earnings growth should continue at
Folks who invest on the basis
of the economic indicators
make more money for their
brokers than they do
for themselves .
about a 10% le% °el in the foreseeable future .
FTU trades at a P/E of 9 <strong>and</strong> rields 4 .4% .
~' Pharsnaceaticalr(16) is a small manufacturcr
<strong>and</strong> distributor ofpharntaceuticals .
Earnings should show a 30"/" rebound this
year, Nrith furthcr gros~th in 1996 . The stock
trades at a P/E of 17 <strong>and</strong> yiclds 1 .7"0 .
Outboard 14arine (19 ), the world's largest
manufacturer ofoutboard engines, is participating
in the strong recocenof the boating indusm'
. Earnings should shom a major rebound
to orer 31 .75 a share in the current fiscal vear
(ends Sept . 301, «idi another gain likely in
1996 . The stock trades at a ; ie of 7 <strong>and</strong>
viclds 2 .196 .
Republic National Bank nJ'Nem Y'mk (54) is
the m entv-second-largect bank in the U .S . Income
has been improving steadily in the ~7
1990s <strong>and</strong> sLould set a new record this year, O
«ith continuing grovrtlt ahead . The stock t ;_
trades at a^/s of 11, onh, a43'n, premium to G~
book, <strong>and</strong> s'ields 2 .7%. O
Union Catnp Corp . ( 561 is a major marm- ~I
facmrer ofpaper, linerbuard <strong>and</strong> packaging. ~
Earnings are reco~ering rapidly <strong>and</strong> should hit tA
record levcls this rear vcith another major gain in M?
1996 . The stock trades at a P/ t!. of 12 on 1995 W ;lestimates
<strong>and</strong> ~'ields 2 .9% . ~
186
Forbcs . Aueust 14, 199o
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