The securities industry, encouraged by the postwar focus on the stock market, is betting on itself.
Try to forget those record losses throughout the industry. Wall Street reasons that the small investor, coaxed along by lower interest rates, may be regaining some enthusiasm.
As a group, shares of brokerage firms have risen 33 percent this year. Spectacular examples include the stock of Alex Brown Inc., up a whopping 80 percent in value; Quick & Reilly Group, up 76 percent; Charles Schwab Corp., up 70 percent; and Merrill Lynch & Co., up 50 percent.
The main sparks igniting once-downtrodden brokerage stocks have been increased sales and trading, prospects for a comeback of corporate financing in 1992 and continued industrywide decline in both the number of employees and costs.
"This is a cyclical business and it looks as though the down cycle is over; though, if the market fizzles or recession is prolonged, everything might not be quite so positive," said Dean Eberling, analyst with Shearson Lehman Brothers.
He's convinced the stock prices of the securities firms could move dramatically higher. First-quarter earnings should be good, particularly when compared with the dismal prior quarter.
The stock of A.G. Edwards & Sons Inc. is a favorite of Eberling, since it will benefit immediately from gains in securities sales because it emphasizes individual investors.
He likes the stock of discount broker Schwab because that firm added 19 new offices last year and will add another 10 this year, and because it is busily building a regional calling center and expanding into smaller markets.
"The market rally may be forecasting a 1992 economic recovery," said James Hanbury, analyst with Wertheim Schroder & Co.
Morgan Stanley Group is the nation's best brokerage firm, superbly managed in institutional and corporate finance, capable of good profit margins even in bad times, Hanbury believes. He predicts an up year in 1991, but with next year much stronger due to gains in corporate finance.
"When choosing a brokerage firm, I'd go with those featuring the best management and corporate culture," said Hanbury. "I therefore wouldn't be put off at all by the higher price of a firm like Morgan Stanley."
Other, somewhat less vigorous buy recommendations of Hanbury are Merrill Lynch and PaineWebber Group, both of which should do well in 1992.
Bear Stearns Companies is an investment favorite of both Eberling and Hanbury. Eberling points out that the firm has built JTC up its list of clearing clients significantly and solid earnings gains will likely be the result. Hanbury notes both the company's 30 percent inside ownership and fine exposure to a retail business upturn.
Nonetheless, other analysts caution that no one should expect the brokerage stocks to automatically charge ahead. It is, after all, a tricky business of fortunes won and lost and quick movements.
"Discount firms such as Quick & Reilly and Schwab should benefit the most from strong stock sales because they can pass those profits through quickly, while the other firms have higher expenses," said Samuel Liss, analyst with Salomon Brothers.
In fact, Liss isn't recommending any brokerage stocks right now because their prices have gone up so significantly. He had Merrill Lynch as a buy recommendation prior to its recent price jump.