Search

Real estate investment trusts (REITs) have underperformed the market in 1995. Since REITS must pay out at least 95% of income as dividends they have entered the capital markets to preserve their equity. Investors will find REITs a good investment if they desire moderate growth and income through the year 2000. An able management team, low dividend ratios, and a good balance sheet are assets to consider.

Earnings for the 1st qtr of 1995 were good for the aluminum industry, due to good fabricated product and primary metal prices. Aluminum stocks are timely for investors seeking dividends, but not price appreciation. Copper prices are expected to weaken in 1996 with added copper supplies, but increased demand will strengthen the industry by 1998-2000. Phelps Dodge is the most attractive stock for capital gains for the next three to five years.

Low natural gas prices and high supply have reduced gas industry earnings for 1995. Profit margins in the gas processing industry are good but will narrow in 1996. There will be steady growth in the natural gas industry through the 1990s, due to increased demand and volume, industrial expansion, environmental legislation, and technological innovation. Panhandle Eastern and Williams Cos. are good stocks for long-term gains.

Canadian energy industries' financial results will be mixed for 1995 and 1996. Integrated petroleum companies will do well with higher oil prices, but the gas industry will be less profitable because of declining gas prices. Pipe lines will have good earnings through 1996, due to market needs and interest rates. Several stocks are ranked above-average for safety and timeliness in 1995, but must be evaluated individually by investors.

Chemical industry earnings for 1994 and 1995 are currently strong, but as US economic growth slows earnings will decrease. Fertilizer and ammonia prices are still high, due to demand, but these sectors are not attractive for the long term. Investors need to be aware of the industry's cyclical nature before evaluating which stocks to buy, but many currently offer strong investment potential. Stocks to watch include IMC Global, Terra Industries and First Mississippi.

The hotel and lodging industry has become more attractive in the 1990's with increased demand after the 1980's glut. Well-known hotel chains such as Hilton and Marriott are expected to do well. Casino gambling is spreading to areas other than Las Vegas, NV and Atlantic City, NJ but growth is not expected to be rapid. Most investors will find shares in this group to be risky.

Oil prices for 1995 at $16.50 to $20 a barrel are expected to remain at these levels, which is 30% above 1994. Economic growth in Western Europe, Japan and elsewhere, turmoil in the former Soviet Union, and Iraqi oil sanctions are factors influencing the supply-demand ratio for petroleum. Increased supply and reduced demand caused by weather and other factors have weakened natural gas prices. Investments in these industries for the coming year must be judged on an individual basis.

Revenues for advertising firms increased 6.4% to $320.3 billion in 1994 and are expected to show a similar growth of 6.6% to $340 billion in 1995 on a worldwide basis. The United States was the leading area for revenue growth with a 7.9% increase to $149 billion for 1994 compared to a 5.1% increase to $171.3 billion for non-domestic firms. Interpublic Group and Omnicom Group are good investment opportunities in the advertising industry group.

The recreation industry is expected to keep the same pace in 1995 that it maintained during 1994 when composite earnings gained over 35%. Many recreation businesses are seasonal in nature and are also affected by business cycles and stock prices. 1995 is expected to be profitable for the recreation, recreational equipment, and entertainment industries. Projections are based on a more solid economy.

The rise in the prices of copper and aluminum fueled upward movement in the stocks of diversified metal companies over 1994. Increased demand from overseas has helped metal companies prosper, despite the rising interest rates domestically, which could work to slow down demand in the US. However, the use of aluminum in cars should increase in 1995, improving demand for the metal in North America. Although stock prices might not increase much more in 1995, they should remain strong.

The Federal Reserve Board's decision to increase interest rates in 1994 damaged the strength and stock prices of real estate investment trusts (REITs), and this trend will continue as long as the Fed maintains a tight monetary policy. The extremely low prices of some REITs might be attractive to investors, and real estate fundamentals will be good in 1995. However, investors should be prepared for lower yields and falling stock prices unless interest rates begin to fall.

The natural gas industry has been hampered of late by severely depressed gas prices and unseasonably warm weather in certain areas, but these problems should be short-term. The industry's longer-term outlook is more positive, and several individual companies appear to be on track for continued earnings and reserves growth.

The Canadian energy industry on the whole presents a mixed opportunity for investors. Oil and gas producers that have large reserves and room for volume growth are expected to do well, as are companies that are involved in petrochemicals. However, natural gas companies are not expected to show such good prospects in the short term, but are recommended for the long-term investor. Furthermore, several pipeline companies have decent dividend yields that may even increase.

The chemical/diversified industry is recuperating nicely as the general economy improves. The demand for products is strong, but prices are holding their own, due to the nature of contract business. Although the Federal government has raised interest rates again in Nov 1994, the economy, along with foreign economies should continue to improve. Star chemicals include polyethylene terephthalate, which increased in demand by 20% during 1994, compared to 1993 figures.

Hotel occupancy has improved in 1994, after too much hotel expansion in the late 1980s. Hotels are cautiously raising their hotel rates, but not many of them are planning expansion. On the other hand, casinos are expanding too quickly and may be in for lower profits due to oversaturation. The gaming market in Las Vegas, NV, is more expansive than other markets, with the addition of Treasure Island, M-G-M Grand and Luxor hotels and casinos. The hotel/casino industry carries much risk in 1994.

The natural gas industry ranks lower on the scale in terms of timeliness for investors to consider buying securities in industry-related firms. In Nov 1994, Natural gas prices are up to 35% below gas prices during 1993. OPEC plans to remedy this situation by keeping 1995 natural gas production levels the same as 1994 levels, thereby increasing the demand. Warmer weather has also affected gas prices and supply.

The recovering economy during 1994 will boost revenues in the advertising industry, making this group of stocks a timely area for investors. Although the domestic market looks bright, international markets will enhance these companies even more, through acquisitions and customer loyalty. Therefore, it is necessary for successful advertising firms to diversify their activities into international markets, with those firms in the greatest number of countries performing the best.

The recreation industry is sensitive to the rising interest rates in Nov 1994, and those firms that are marketing big ticket recreational items, such as campers, are affected by this change. Less sensitive stocks are those that offer consumers less costly recreational activities, but for a group, most recreational stocks remain neutral, at best, with few firms slated for dramatic improvement over the course of the year.

Investing in real estate investment trusts should be done carefully because an increase in interest rates has caused a decrease in the value of the trusts. An investor should evaluate trusts over the long term and determine the solidity of their balance sheets. Those trusts with large capitalization rates will be able to enter the equity market more easily. Finally, the high yields of a trust is more important than dividends.

The aluminum and copper industries are evaluated. Aluminum stocks are not a good investment in late 1994 due to the lack of profitability within the industry. Although the outlook is better than it was earlier in the year, due to increasing product demand and decreasing production figures, the price increases are still not significant enough. On the other hand, the copper industry has had a high demand for its product which has resulted in a decreasing supply. The financial outlook for the industry is excellent.

The diversified natural gas industry is not expected to do well economically in 1995 due to the volatility of prices during 1994. Even so, the industry's stocks are expected to have a good rate of return until the year 2000. This energy source is in abundance throughout the US and it is a clean burning fuel. Gas distribution and pipeline companies are still coming to terms with Order 636.

An evaluation of the economic prospects of the Canadian energy industry from 1994 to 1999. Most companies are expected to do well economically because of a rise in oil and gas drilling and an increase in production figures. The only unknown factor for the industry will be the potential change in energy prices. Downstream operations are also expected to do well economically because of the implementation of cost reduction techniques.

Gambling industry stocks carry high risks and are generally not timely, while hotel and motel stocks are on a general steady upswing after several financially troubled years. New casino gambling operations along the Mississippi River are threatened by competition from Indian gaming establishments and also, in some cases, from overexpansion early on. Potential investors should look to well-capitalized, innovative companies, such as Promus Companies.

Recreation companies posted double-digit earnings increases on the whole during the first half of 1994, and are expected to continue to grow throughout the year and into 1995. Carnival Corp and Royal Caribbean Cruises Ltd are among the leisure cruises that have experienced significant growth, while King World Productions continues to be strong following its successful distribution of three popular television shows. As a whole, the group of stocks will perform better than average through mid-1995.

Advertising industry stocks belong to the top quarter of all stocks rated by Value Line. The fact that most companies' stocks are near their 12-month peak in Sept 1994 means that their appreciation potential may be limited in the long-term. However, there are a number of attractive investment options, including investments in companies whose business mostly comes from abroad. Interpublic and Omnicom are especially well positioned to benefit from improving international economies.

The fate of petroleum company stocks largely depends on how much of the company assets are in crude oil or natural gas. Those with most of their assets in these areas, such as Santa Fe Energy, Maxus Energy, and Union Texas, generally are subject to the most volatility. Others with a more balanced range of fuel products, such as Noble Affiliates and Pogo Producing, should offer more stability.

Potential investors in the diversified chemical industry will find several attractive companies, but the industry as a whole is still emerging from the US recession. The timely stocks may not have much long-term appreciation potential. Fertilizer companies such as Terra Industries and IMC Fertilizer are well-positioned to take advantage of a regulatory climate that favors ethanol as a fuel, though ethanol's future is uncertain because it is still not economically viable.

The aluminum industry is expected to experience below-average performance through 1997-1999, and the copper industry is expected to have good long-term prospects. Aluminum stocks have been reduced, which has helped to boost prices. Copper prices are expected to decline through the end of 1994. Investments in the copper industry should focus on companies such as Magma Copper and Phelps Dodge.

The real estate investment trust industry is expected to have weak growth over the short term, but long-term prospects are favorable. A growing US economy will help spur growth in the industry, although continued increases in interest rates and competition have contributed to an overall depressed industry performance. Investments in this industry should focus on trust companies having debt-to-capital ratios that are less than 50%.

The diversified natural gas industry is not expected to offer good returns over the short term, but long-term prospects could be profitable to the patient investor. Natural gas consumption is expected to grow, helped in part by environmental legislation that mandate cleaner burning fuel. Companies in the transmission and distribution sectors of this industry are also expected to exhibit strong growth due to the many construction projects now underway that will provide a strong profit base.

The diversified chemical industry's prospects during the 1997 to 1999 period will probably not be spectacular, although some businesses may experience strong growth. Investments in these companies over the short and long terms is not likely to prove profitable, although the world's economy is expected to improve through the end of 1994. Companies that recommit to their core holdings will likely show the most promise. Some companies may experience legal problems that will influence their bottom lines.

The petroleum and natural gas industries are likely to experience upturns in their prospects, but improvement is not likely until 1997. Prices for crude petroleum have begun to rise, but demand remains sluggish despite an improving US economy. Natural gas prices are expected to increase at a moderate rate, and demand should continue to be strong in the near term.

Advertising agencies should experience improved business because companies are projected to increase their ad spending. US ad spending should gain 6.5-7% in 1994, and international ad spending should rise 4-4.5% over 1993 totals. The potential for advertising profits from interactive media, though promising, has yet to show a significant presence. Some of the best stocks to invest in include Foote, Cone and Belding, and Omnicom.

A number of stocks in the recreation industry should experience strong price gains averaging 13% in 1994. One worthwhile investments include Walt Disney Co, which should benefit from a projected increase in attendance. The cruise line industry should also experience passenger gains of 10% over 1993's numbers. Investors considering stocks in this industry could garner as much as 25% in price gains should margins improve.

The newspaper industry remains sluggish. Advertising revenue growth remains weak, although 1994 classified ad volume has shown growth of 4-8% over 1993. However, retailers' ad placements have not kept pace with classified ads. Stocks in this industry are more popular because newspaper companies are entering new markets through cable television and computer networks.

The casino industry is experiencing a boom, and the lodging industry is beginning to recover. Hotel and motel occupancy rates have increased in 1994, resulting in growing optimism that the industry is becoming stronger. Casino stocks have the potential for strong gains because casinos are expanding across the US and Canada, resulting in new markets. Gambling on riverboats and indian reservations seem to be the most popular expansion sites. Additionally, slot machine machine manufacturers should benefit from this expansion of the casino market.

The aluminum industry was adversely affected by exports from the former Soviet Union and industry leaders met to cut production to raise prices during 1994. Demand for aluminum in Japan and Europe is low, but US industries, such as auto and building, are buying more. The industry should break even in 1994, but prospects grow strong for 1997 through 1999. However, for the short-term, the aluminum industry stocks are not a good buy. Copper prices will stay at current levels, but will rise to 95 cents per lb in 1995.

Real Estate Investment Trusts (REITs) should be a good investment for the long-term, from 1994 to 1997 or 1999, but for the short term, interest rates may cause the assets of such investments to decline. Most REITs will offer price stability and income to investors, and some investors are buying them despite rising rates. Investors should examine those REITs with a stable history of FFO increases, rather than buy those with higher dividend yield.

Canadian energy industry stocks will likely improved over their mixed success during 1993, but few companies are expected to have dramatic performances. PanCanadian Petroleum is well positioned as an aggressive domestic driller for success out to 1997-1999. Ranger Oil is among the companies aggressively drilling in foreign lands that may also provide good investment options for the 3-to-5 year term. Conservative investors will also find several attractive options.

Diversified natural gas industry stocks are in general not timely and investors are advised to invest for 1997-1999 returns rather than 1994 returns. Exxon and Amoco are among the companies that have positioned themselves to take advantage of expected new demand for natural gas, partly because the fuel can meet stricter environmental standards. Average daily consumption in California, Arizona and Nevada could increase more than 1,100 million cubic feet before 2000.

The petroleum industry has experienced losses and lower earnings, but long term growth prospects for 1994 through 1999 look good, as the economy improves. However, short-term prospects are not as promising, due to the recession and lower crude oil prices, which have sunk 25% to 30% below 1992 rates. Unlike oil, natural gas will do well during 1994, and has the backing of the Clinton Administration as a environmentally-friendly fuel.

Prospects for the recreation industry look good in 1994. The industry trend continues to be an emphasis on active forms of recreation, due to the public's concern for fitness and health. During 1993, numerous mergers in the entertainment industry have occurred for sound financial reasons, such as home electronics firms wanting to acquire software companies. The European recession will have to subside before Euro Disney amusement park will recoup its losses.

The chemical/diversified industry has gone through rough economic times during the 1990s recession. Firms have streamlined their operations to survive, selling off non-core divisions to boost revenues. Layoffs were common in 1993. Modest gains are expected during 1994, although the 3-year to 5-year return potential remains dim. Only a few securities are considered timely buys during 1994, including Terra Industries, First Mississippi and Millipore.

The hotel/gaming industry has improved in 1994, with gambling areas leading the way. Rapid growth in Las Vegas, NV, has spurred the growth of new casino-hotels, such as the M-G-M Grand resort and Mirage's Treasure Island. Native Americans have won the right to open casinos on their lands, and experienced firms are building their facilities. Older, established gaming areas, such as Atlantic City, FL, have made changes to meet competition and increase their market share.

Ad revenues are expected to increase 6.5% in 1994, as the economy improves. Television advertising will lead the sales. Interactive media concerns will grow, but advertisers will continue to evaluate the new area before committing any money. Interactive media will face stiff competition with the number of channels that will be offered, plus competition in other entertainment areas. Good long term investments include Omnicom and Interpublic.

The long-term outlook for aluminum company stocks is good, but the short-term outlook is plagued with problems such as high inventories and an overabundance of imported products from the Commonwealth of Independent States. Similarly, copper prices will remain about the same during 1994 while the economy recovers, but long-term prospects for the copper industry are strong. Investors should consider both metals as good long-term investments, but short-term investments are risky.