Bearish On The Market? One Pro Hears A Bull Run

If you're one of the many who believe that the stock market has nowhere to go but down, investment pro Abby J. Cohen has news for you. This savvy co-chair of Goldman Sachs's Investment Policy Committee is very bullish: She's convinced that the stock market is currently "undervalued and a compelling buy."

No, she's not kidding--despite the weaker-than-expected economic recovery. Cohen, who started her career as an economist at the Federal Reserve in Washington, bases her prognosis strictly on fundamentals: earnings and cash flow, inflation and interest rates, dividends and price-earnings ratios. She insists that she's not invoking wild numbers to reach her bullish valuation. Her earnings forecasts, she argues, are conservative. They assume a modest 12% rise for 1992 and another 12% in 1993.

Cohen sees the Standard & Poor's 500-stock index rising to between 450 and 460 from the current 415 over the next 6 to 12 months (say, 3500 to 3600 on the Dow). But hitting those targets wouldn't signal the end of the bull market, she adds. Cohen predicts that the market could go as much as 20% higher than current levels, to nearly 4000 on the Dow.

She is advising Goldman Sachs clients to invest 70% of their portfolios in stocks, 25% in long-term bonds, and 5% in cash. Would she go after growth stocks? Definitely, says Cohen. In particular, she favors the growth stocks in food and household, drugs and health care, and regional banks.

FEEBLE RECOVERY. Cohen's individual stock picks: Sara Lee and Tambrands among food and household stocks; Merck and Pfizer among the pharmaceuticals; U.S. Healthcare, the HMO operator, and HCA-Hospital Corp. of America, the huge hospital-management company, in health care; and NationsBank, Banc One, and Wells Fargo among the banks. Cohen is also "intrigued" by certain technology stocks: Dell Computer, which makes IBM-compatible personal computers, and Read-Rite, a producer of thin-film recording heads for disk drives. Apart from proven track records for earnings, these companies, whose products and services are leaders in their respective markets, have strong unit sales.

Cohen believes the bull market has been stalled by such near-term worries as the feeble economic recovery, the dismal economies in Europe and Japan, and the prospects of a Clinton victory on Nov. 3. Cohen maintains that investors have come to "know and understand Clinton better." My sense, she says, is that a "Clinton victory won't be that alarming to investors."

And when the world economy finally gets on its recovery course, she says, "it will be long-lasting." The time to buy equities is now, Cohen says.

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