A defense contractor benefiting from military cutbacks? An index fund leading the equity pack? So far, 1994 has some oddball winners. This topsy-turvy time of correction and volatility has turned markets upside down, undercutting traditional leaders while giving new life to former laggards such as Japan.


You would hardly expect to find a defense contractor at the top of the NYSE. But so far, ECC International Corp.'s diversification into vending machines has been a hit. The company's stock jumped 243%--primarily because Snapple snapped up $30 million worth of its glass-front machines, which can hold as many as 54 beverage selections in glass bottles.

Meanwhile, the company's core business is no lemon. Most of its $65 million in 1993 sales came from the computer simulators that ECC makes to train personnel in maintaining and operating military systems. This training is "very cost-effective in a declining defense market," says President and CEO George W. Murphy. After two years of losses, ECC has some $65 million worth of Pentagon contracts to sell plane and tank simulators to such countries as Egypt, Finland, and Saudi Arabia.


The picture brightened for TSX Corp. on Mar. 14, when cable-television powerhouse Tele-Communications Inc. took a 49% stake in the El Paso company. Its Texscan unit supplies equipment to cable networks. The stock of TSX is up 234%, to $16, since January. "Our survivability is no longer in question," says Chairman and President William H. Lambert, who took over when TSX emerged from Chapter 11 in 1988. He used the TCI equity to pay off most of the $17 million debt he inherited and now is planning to target booming overseas markets.


A hostile-takeover-turned-friendly catapulted Centex Telemanagement Inc., a telecommunications service provider, to the top of NASDAQ, up 250% since January. Centex stock had been languishing near $4 when MFS Communications Co. made an offer of $9 a share in early March. Centex first rejected the offer but later acquiesced to a sweetened $11 bid.

San Francisco-based Centex, with $196 million in sales last year, assembles low-cost services for small and midsize businesses. Last year, profits were slipping, as a consequence of both increased competition and deregulation. That, however, doesn't faze Omaha-based MFS, an aggressive, independent provider of fiber-optic telephone service. MFS wants to give inexpensive service to Centex' 11,000 customers over a network already in 24 markets and expanding to 75.


Semiconductor companies in the U.S. remain hot, up 33% this year. Doug Andrey, director of statistical programs at the Semiconductor Industry Assn., attributes the sector's strength to superior advanced integrated-circuit design, increased access to Japan's market, and to Sematech Inc., the industry-government consortium formed to get U.S. chipmakers off the endangered-species list. Surging demand for chips in everything from personal computers to cellular phones and antilock brakes should keep business brisk. The worldwide market is expected to grow from $77 billion last year to $93 billion.


By definition, index funds aren't supposed to lead the pack because they represent a market average, but DFA Japanese Small Company, which has delivered total returns of 34.24% so far in 1994, is a pretty esoteric slice of stocks. It comprises some 600 small Japanese companies. DFA buys and holds them until they get too big, so Japan's recovery has more to do with boosting the small fry in the $305 million fund than the wiles of manager David Price.


Franklin Templeton Hard Currency also owes its robust 7% return less to manager Neil Devlin than to outside forces. The $38 million fund is "primarily for people in the U.S. looking to protect against depreciation of the dollar," says Devlin, and that was the right place to be when the greenback tanked. Devlin's strategy is highly circumscribed: Using Swiss francs as a core currency, Devlin is required by the fund's prospectus to invest in the five developed countries with the lowest inflation. He's now in Denmark, Japan, Switzerland, Australia, and New Zealand. Strong growth in commodities exports from the last two also helped make Devlin a winner.


Stirrings of an economic recovery and waves of cash from abroad turned Tokyo into the industrial world's top-performing market so far this year. In dollar terms, the Nikkei stock average rose 28.5% through June 7. Further gains are likely. Japanese businesses have slashed costs, which should boost profits by up to 40% this year. The Bank of Japan may help this summer by cutting interest rates, already at record lows. Rod Smyth, strategist for Baring Securities (Japan) Ltd., thus expects the Nikkei to rise 19%, to 25,000, by this time next year.


For those who like their commodities hot, coffee is the market of choice. Futures prices for a pound of beans at New York's Coffee, Sugar & Cocoa Exchange more than doubled, from 72 cents on Jan. 5 to $1.46 on May 24. That may be just a warm-up: By autumn, the peak consumption season, coffee prices could percolate past $2, says Judith E. Ganes, senior analyst at Merrill Lynch & Co.

Why the run on java? Extremely tight supplies worldwide. Coffee prices got so depressed in the early 1990s that producers didn't bother to fertilize their trees, much less plant new ones. It's a good combo for speculators: brewing demand and stockpiles that barely amount to a hill of beans.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE