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INCREASED DISCOUNT RATE A FLIMSY EXCUSE FOR RALLY

"For the first time in about five years, the Federal Reserve has raised the discount rate," observes The Wellington Letter (6600 Kalanianole Highway, Honolulu, Hawaii 96825). "The rate hike cleared the air, creating the perception that the Fed would not raise rates again for several months. It's a flimsy excuse for a rally in stocks, just because the pain has subsided temporarily. There's more pain ahead on the interest-rate front. And that means more pain for stock and bond investors too."

- Former closed-end fund Nicholas-Applegate Growth Equity, which has appreciated an average 14.6 percent annually over the past five years, hasn't changed its philosophy since opening to new money in 1991. It still focuses on stocks with strong, sustainable earnings growth and price momentum. Unlike value-oriented funds, which insist on cheap stocks, N-A actually sells stocks whose relative share-price drops. Recent favorite issues: Georgia Gulf, Adaptec, Cardinal Health, Mattell, Baybanks, Hospitality Franchise System, United Healthcare.- Productivity improvements and foreign expansion possibilities are turning investors' attention back to the environmental stocks, says Junior Growth Stocks newsletter (P.O. Box 15381, Chevy Chase, Md. 20825). "Here are nine small environmental stocks which sell, on average, for less than two times book value and 1.4 times sales. Their strong balance sheets contain little or no debt and are cash-rich. They're also attractive takeover candidates." The nine: BHA Group, Dames & Moore, EMCON Associates, Dionex, Handex Environmental, O.I. Corp, Oil-Dri, Sevenson Environmental, Tanknology Environmental.

- A classic Wall Street strategy is to buy weak stocks that are about to get strong. Value Line gives these eight stocks only C-plus-plus ratings for financial strength. But the Institutional Brokers Estimate System expects their earnings to grow at least 12 percent annually over the next five years. All recently sold for less than 15 times estimated 1994 profits: Black & Decker, Caesar's World, Graphic Industries, Mr. Coffee, Quixote, Service Merchandise, Shoney's, Windmere.

- Income investors frightened by the upward trend in interest rates are taking another look at the prime-rate funds, which actually benefit from higher rates. "While virtually all bond-fund classes have been battered by higher rates," notes Barron's Randall Forsyth, "these have been notable exceptions. Over the past year the average prime fund has outperformed the average short-term multi-market fund by over 60 percent." Major players: Van Kampen Prime Rate, Pilgrim Prime Rate Trust, Merrill Lynch Prime Rate.

- All the world's major governments, including the United States, Germany and Japan, are running big-budget deficits, observes Benham Group Chairman James Benham. "This means there are no truly hard currencies left to hide in. Although current inflation rates remain low, the gold market is sniffing higher figures out there, and that's when gold holdings are most useful."

- The SEC requires all public companies to file a Form 10-K within 90 days of fiscal year-end, observes Lear's (655 Madison Ave., New York, N.Y. 10021). "This isn't the glossy, optimistic annual report companies love sending their shareholders. It's a detailed picture of the company's present and future financial health. It's a must-read for serious investors."