Is it a time to prospect for profits in metals stocks?

In 1978-79, stocks of the metals and mining companies boomed. And so did their business. Today these stocks are booming again. But this time a fair portion of their business is still flat.

This situation has perplexed many a portfolio manager, says J. Clarence Morrison, first vice-president of Dean Witter Reynolds Inc., and one of the leading bulls in the mining camps. ''The situation is more complex than meets the eye,'' he says.

In past cycles the industries have often moved as a group, or composite unit. When business improved in one metal, it often improved for all. When investors were bullish on one mining company, they liked them all. This time business is a lot more spotty, Mr. Morrison points out.

''The aluminum industry is responding fastest to the economic recovery,'' he says, ''primarily because it is a consumer-related commodity.'' The aluminum business is followed in lesser degrees by copper, steel, and other metals.

In aluminum, for instance, about 70 percent of the product line is showing an improvement in orders, while only 40 to 45 percent of the copper products have shown increased demand. The actual percentage of increased demand for these products is impressive, although not staggering. Mr. Morrison says that, seasonally adjusted, orders in the consumer end of the aluminum business are up 25 to 28 percent over the fourth quarter of last year. Orders are rising even though there is a five-month inventory. A more normal inventory level would be three months.

While this is baffling to many portfolio managers, Mr. Morrison maintains that it has to do with the nature of the economic recovery. ''Three years ago we had the beginning of the so-called recovery,'' he says. ''America was going to retool. But this never happened.'' Yet the aluminum companies built up inventories of heavy product lines, expecting a capital goods expansion. Those products are still sitting in the warehouses.

At the same time, companies are increasing their prices on new orders booked by 10 to 15 percent. The price of raw ingot is up sharply, from 46 cents a pound last September to around 70 cents this year.

To Mr. Morrison, it's clear that the aluminum producers have a large inventory of product that can't be used in this type of economic recovery. Thus, there is the paradox of high inventories and rising prices. The key here is that the inventories for consumer-related items are not plentiful and production lead times are stretching out.

The copper industry is a similar story. Like aluminum, copper inventories are relatively high - at four to five months - and orders are spotty. Residential construction is relatively strong, as is demand from manufacturers of small electrical devices. But demand from commercial construction is weak. Even though inventories are high, Mr. Morrison believes that ''a modest improvement in orders would materially change this.'' And, he notes, there has been some hedge buying in case of a strike by the copper companies' United Steel Workers employees. ''There is a 50-50 chance of a strike by June 30 even though Kennecott has announced a fairly costly settlement,'' he says.

Against this background earlier this year, Mr. Morrison issued a buy recommendation on Alcoa and a buy-hold on Reynolds Metals, Asarco Inc., and Freeport-McMoRan. Since then, these cyclical stocks are up at least 20 percent.

He likes Asarco, which he calls ''an old dog who has learned new tricks,'' because it has managed to cut costs and keep production up. At the same time, it has huge overseas equity ownerships in such companies as MIM Holdings Ltd., in Australia; Southern Peru Copper Corporation; and Medimsa, in Mexico. Total equity earnings should come in at $93 million, up from $43 million last year. Of that $93 milion, $53 million will be due to currency gains, since the companies are selling the metal in hard currencies but their costs are in weaker local currencies. This helps Asarco's equity and earnings.

Most of these companies are highly leveraged, so any combination of modestly higher prices and increased operating rates dramatically improves future earnings estimates.

For this year, he expects Alcoa to report earnings of $1.75, which should rise to $5.25 next year and $6.75 in 1985. He says Reynolds will report a 50 -cent-a-share loss this year while posting a $4.50-a-share gain in 1984 and $6 in 1985. Asarco will post $4-a-share earnings this year, $6.50 in 1984, and at least $8 in 1985. Freeport will post $1.75 this year, $3.25 in 1984, and $4.50 in 1985.

Not surprisingly, not all of Wall Street is bullish on these stocks. Using a much more conservative set of econometric numbers, assuming a very poor recovery , George Cleaver, vice-president at Merrill Lynch & Co., says that ''these stocks are far ahead of themselves.'' At current prices, he says, ''it would suggest they would make the kind of money next year which they made in 1979-80. The chances of this happening are 1 out of 10, or even by 1985 the chances are only 1 out of 5. I would keep away from these things.'' But Mr. Morrison notes even analysts who assume lower earnings still like the cyclicals. So far, the market is bearing him out.