The doctors are in. It's time for your portfolio's midyear checkup and investment prescription.
Your heartbeat may have been a mite irregular during the stock market gyrations thus far in 1998. So, you should now carefully go over every investment you own to determine whether it's still appropriate. Then, when the stock market's EKG skews downward on a given day for some ridiculous and irrelevant reason, consider taking a very deep breath, checking your blood pressure and perhaps even buying more.Retailing stocks benefiting from Asian currency devaluations that make merchandise less expensive should help you feel better. The same goes for world-class drug companies whose miracles know no boundaries. Regional bank and electric utilities stocks should provide soothing relief, while some technology choices provide a quick boost.
Whatever you do, don't toss out all your old medicine that worked in the past just because you fear the Asian contagion. Be a long-term investor and realize that even the experts don't agree what's best for you.
"I've been holding three-quarters of my portfolio in equities and I wouldn't change anything," asserted Peter Canelo, U.S. investment strategist for Morgan Stanley Dean Witter. "In January, February and March, bonds actually went down while stocks went up 1700 points, which I don't expect to happen again."
The Japanese crisis isn't going to be that much more of a problem, Canelo contends, while the incremental decline in bond yields all over the world will further benefit various economies. It's true there was a collapse in Southeast Asia commodity prices and industrial futures, but Japan isn't a debtor nation and prices weren't suffering the same collapse there.
"Your strategic asset allocation is your long-term allocation based on why you were investing in the first place, which I wouldn't change in anticipation of something that may or may not happen," warned Sam Stovall, director of industry information for Standard & Poor's, who expects a flat second half of 1998 for the market and modest gains in 1999.
In contrast, your tactical allocation is the repositioning or swapping of items within an asset class, he explained. You'll probably need to do some rebalancing now because stocks have risen 140 percent in the past 31/2 years, while bonds and cash have paled in comparison, he advised. Industries likely to underperform over the next six to 12 months include basic materials, capital goods and energy, Stovall noted.
"The market is going to continue volatile for much of the rest of 1998 and equity market returns will probably be modest compared to what we've seen in recent years," predicted Marshall Acuff, investment strategist for Salomon Smith Barney. "So long as you're holding first-rate companies, I'd stay with them, while if you have lesser quality companies bought for speculative reasons, I'd take another look at whether that's what I should be in."
Retailers look good. The safest way to play the market right now is to go with domestic stocks such as retailers who are profiting from Asia's woes in the form of lower prices on dresses, toys, textiles and fabrics, said Canelo. His favorite retailing stocks are Dayton Hudson, Gap, Home Depot and Lowe's.
Stores will be purchasing their inventories from whoever has perfect quality at the best price, which often means Asia, Stovall added. He suggests Staples, OfficeMax, Federated Department Stores and Profitts.
Acuff likes prospects for Dell Computer. Regional banks are another safe idea because they're in the high-margin loan business and are enjoying a merger boom. Canelo favorites are Mellon Bank Corp and U.S. Bancorp.
More aggressive investors should go for the less risky technology stocks such as Cisco Systems and Microsoft, Canelo be-lieves, while he also likes oil services firms Schlumberger, Hal-li-burton and Diamond Offshore Drilling. Cyclical favorites are Georgia Pacific, Aluminum Company of America and B.F. Good-rich.
Stovall's top homebuilder stocks are U.S. Home, Clayton Homes and Oakwood Homes. His leisure stock choices include Harley Davidson and GTECH Holdings.
Acuff is thinking conservatively and likes electric utilities Duke Energy, Texas Utilities and Houston Industries. Other high-quality choices worth considering include General Electric and McDonald's. In a bond portfolio, he'd be shortening the maturities to less than 10 years.