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Dow overvalued? Check GDP growth

SHARE Dow overvalued? Check GDP growth

Since 1960, the Dow Industrials have risen 11-fold, observes The Personal Capitalist newsletter (6911 S. 66th East Ave., Tulsa, OK 74133). "But Gross Domestic Product grew 14-fold during that same period. From this historical perspective, it is difficult to argue that stocks are too high. Maybe earnings really will grow rapidly enough to make fundamentals such as price/earnings ratios come back into line."

- Mainstay Value Fund, which has appreciated an average 17.9 percent annually over the past five years, won't even consider a stock without a strong free-cash flow, a large insider stake and a hearty discounted price.- Most housing stocks are selling at bargain levels because investors fear that the building cycle has crested, notes United & Babson Investment Report (101 Prescott St., Wellesley Hills, MA 02181). "But the economy is still strong, more Americans are working than ever, and baby boomers are trading up to bigger houses. Unless interest rates shoot through the roof, housing should remain relatively strong through the year 2000. We favor builders that concentrate on the South/Southeast (Lennar, Kaufman & Broad), the wealthy (Toll Brothers), factory-built houses (Fleetwood) and retirement communities (Del Webb)."

- It's hard to believe some small-growth stocks with solid earnings and low debt are still selling at attractive prices. But Diane Van Buren, co-manager of FAM Value Fund, which has appreciated an average 19.5 percent annually over the past three years, believes she has found four: Conmed (medical devices), Allied Life Financial (life insurance/annuities), ESSEF (water treatment/swimming pools) and Modern Controls (air and water measurement devices).

- Municipal-bond investors should stick to general-obligation bonds, which are backed by a state's taxing power, or to revenue bonds backed by income from an essential service such as power and water, according to James Cooner, head of the Bank of New York's tax-exempt bond-management division. "No state has ever defaulted on a G.O. bond. And water, sewer and other necessary services produce reliable income. If you don't pay your water bill, you don't take a shower."

- The Silver Institute (1112 16th St. N.W., Washington, D.C. 20036) predicts that by 1999, 541 million ounces of silver will be mined annually, reports Gold Stocks Advisory (23-00 Route 208, Fair Lawn, N.J. 07410). "Meanwhile, The Metals Consultancy estimates that 1,984 million ounces of silver will be required by industry and jewelry manufacturers every year. That 1,443 million-ounce shortfall spells higher prices for silver."