What to buy in a market upturn
Professional investors dealing with an unsteady stock market - such as the one that has prevailed for the past few weeks - have to keep their eyes on two questions:
First, there's the problem of what's troubling the market, pushing down prices, and when those troubles will ease up to let prices start climbing again. Second, they have to figure out what stocks to buy when the bulls return to the trading floor.
For Robert Hill, executive vice-president of Favia-Hill & Associates, a clue can be found in the way people live. Favia-Hill was set up in October by New York's Chemical Bank to manage pension and endowment funds. The division is now responsible for some $9 billion in assets, of which about $3.5 billion is in equities, Mr. Hill said.
Looking beyond the current stock market doldrums, which have led Favia-Hill to reduce the equity share of its portfolio, Hill sees big capital-spending stocks leading the way back to rising prices, but only for the short term. In the long term, he believes consumer stocks will pull ahead of blue chips as well as high-technology issues.
There is, of course, the problem of deciding which consumer stocks to buy. For Hill, who was in Boston recently, the key is to look at the way Americans live and pick what he calls ''life-style stocks'' based on those patterns.
''Consumers are responsible for two-thirds of the gross national product,'' he notes. To find the stocks these consumers will help, he says, ''look around you. See what's happening.'' A few years ago, for instance, there was a subway strike in New York. As a result, many New Yorkers had to hike to work. He recalls vividly the scene of thousands of people walking across the Brooklyn Bridge and many of them - especially women - wearing running shoes, an incongruous sight on people in their dress-for-success suits.
Partly as a result, running shoes have also become walking shoes and sales have taken off, as have the stocks of companies like Nike and Converse.
Running shoes are just one of the items in the leisure wear category that Hill thinks will benefit from changing life styles. A generation or two ago, he recalls, someone might change clothes once a day, if that. Today, a workingwoman , for example, will have clothes for work, clothes for some activity after work like jogging, tennis, or racquetball, and clothes for dinner or evening.
All these changes mean a much larger wardrobe and more sales for companies like Liz Claiborne, United States Shoe, Warnaco, and Hartmarx. Hartmarx used to be Hart Shaffner & Marx, a men's specialty company, but it has since expanded into women's clothes. Warnaco, Hill said, ''is very strong in leading brands,'' owning such labels as White Stag and Hathaway shirts.
Hill believes that companies that sell name brands will fit in nicely with the new life styles, despite the move to off-price retailing and discount brands. While these lower-priced alternatives may save money, he says, they require more shopping time and effort, something workingmen and -women do not have. More women, Hill notes, are adopting the shopping habits of many men: ''They know what they want before they go to the store and then they buy it. They don't spend as much time shopping around.'' These people, then, are looking for brands they know and will go to stores that specialize in them.
This trend also applies to children's clothes, especially where the children are the offspring of working mothers. Thus, the experiment by Toys R Us to sell name-brand children's clothes in stores called ''Kids R Us'' should do very well , he predicts. There are only two Kids R Us stores so far, but Hill expects more in the near future.
Changing life styles also affect the way people eat, particularly those who eat out. While Hill expects fast-food restaurants like McDonald's and Pillsbury's Burger King division to continue to do well, he cites Chi-Chi's Mexican restaurants as appealing to customers who want a bit more upscale atmosphere.