First half of '95 will be tough to follow


Take a deep breath. Relax.

You made it through the first half of 1995 without so much as a bruise.

Both the Dow Jones industrial average and the Standard & Poor's composite provided investors with increases of almost 19 percent. Adding to your positive mental attitude, long-term interest rates declined more than a percentage point.

Cause for heart palpitations were few, with only a couple of big-drop trading days along the way. Which leads us, of course, to the next reason to become nervous: the second half of 1995.

The surprisingly solid first half is a tough act to follow. No one expects interest rates to continue to fall so rapidly. Many Wall Street strategists are cautiously paring back stock holdings in anticipation of harder economic times or a market correction.

With such conventional logic in mind, I turned to some celebrated money managers and strategists who couldn't care less about what anybody on Wall Street thinks.

These contrarians have modest interest in where the overall market is headed and consider a lot of economic forecasting to be poppycock. They buy what they like primarily because they like it.

They know value when they see it, finding it even in a bull market in which many stock prices have soared out of kilter. They don't worry about high-flying technology stocks because most of them don't own any.

Think long term about specific equities, they say, and waste little energy fretting about the second half's unsure machinations.

"I don't believe in a market overview since you really must focus on specific stocks, and I don't follow technology stocks at all," said portfo

lio manager Michael Price, whose Mutual Beacon, Mutual Shares and Mutual Qualified funds each have three-year average annual returns of better than 17 percent.

Groups currently attractive to Mr. Price -- but to few others -- are health maintenance organizations, retailers and oil companies. He has 20 percent of his portfolio in cash, 10 percent in stocks of firms in bankruptcy situations, 10 percent in firms in merger situations and the rest in "cheap value stocks."

Sears Roebuck stock will be inexpensive once it spins off Allstate Insurance, Tenet Healthcare is greatly undervalued, and U.S. West is a bargain, Mr. Price believes.

"We look for firms with troubles that are out of favor with mainstream investors but have factors in place that could lead to positive change in the future," explained George Putnam, whose Boston-based Turnaround Letter investment newsletter's three-year average return is 32 percent, as tracked by the Hulbert Financial Digest.

Embattled Kmart, with new top management, will begin focusing on the "right things" to turn it around, Mr. Putnam believes. Salant Corp., maker of Perry Ellis and Manhattan clothing brands, emerged from bankruptcy a couple of years ago and shows promise. Among cyclicals, he likes LTV Corp. and Armco Inc. in steel, as well as Rexene Corp. and Sterling Chemical in chemicals.

"We don't compete for companies that grow at a 20 percent to 40 percent annual pace and we're not interested in the new issue game," said portfolio manager Shelby Davis, whose New York Venture Fund had a three-year average return of better than 16 percent. "A value investor first asks how much he can lose, rather than how much he can make."

The U.S. economy isn't sliding into recession but instead is in "a pause that refreshes" that could be over by year's end, according to Mr. Davis.

He's concerned about a possible stock market correction but believes both the economy and market are capable of rising to truly robust levels in the long run.

His favorite value holdings are General Motors and Union Camp.

In addition, Amerada Hess, American Express, Gannett Co. and Morgan Stanley are attractively priced companies buying back stock, he noted. A portion of his portfolio is in technology, but in established names Hewlett-Packard, Texas Instruments and Intel Corp.

"I'm having trouble finding anything I can buy at current prices, a sign the market is too high and vulnerable," said Daniel Seiver, editor of the Miami, Ohio-based PAD System Report investment letter, which had a five-year average return in its model portfolio of 9 percent.

"I'm contrarian to the extent that most stocks I consider a good deal are available because Wall Street soured on them."

Inexpensive choices include agricultural biotech firm Mycogen Corp., engine additive company Lubrizol Corp., and grocery chain Albertson's Inc., Mr. Seiver concluded.

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