20 - MANCHESTKR HERALD. Tues., Jan. 25. 1983 East Catholic Herald lensman Water pressure BUSINESS salvages victory turns smokeater still an issue "A . page 18 . page 3 Market guru: Big selloff is here . page 9 I figures these stocks are likely to go down more than the slock index into two indexes, one low-priced stocks and The name of the game in Wall Street is timing. And overall market during his pr^icted decline and rebound the other highpriced stocks, the price of the two indexes last Wednesday, market technician Ned Davis no doubt less during ensuing rallies. was exactly the same in '75. Today, the low-priced index is selling at more than three times the high-priced one. dazzled his clients with a corker of a market call. If he's Energy stocks dominate his sell-now list, making up Cloudy tonight; .Manchester, Conn. right, the long-awaited market selloff is imminent. nearly a third of the group. These are Amerada Hess, This tells you that there’s still a lot of catch-up to Just prior to the opening gun of stock trading that day, Dan Dorfman Global Marine, Gulf Oil, Inexco, Louisiana Land, Mesa come on the big names,” says Davis. cold Thursday Wednesday, Jan. 26, 1983 the well-regarded Davis, who boasts a strong in­ Petroleum Natomas anil Schlumberger. In an accompanying chart, Davis pinpoints 15 blue- stitutional following, got on the hot line and told his Of the remaining 17, several are cited for the huge chip growth names he believes will pile up substantial Single copy 25tf Syndicated — See page 2 roughly 150 institutional clients (who pay him about $1.8 selling by corporate insiders. For example, over the further price gains this year and next. In brief, he took million in annual commissions) to scale down their equi­ Columnist past year, 26 insiders at Hilton Hotels have sold shares, the average annual price-earnings multqile of each of i®anrl|?Blpr Mrral& ty holdings. while only two have bought. In the case of ABC, there the stocks over the last 17 years. He then cut out the two In brief, the 37-year-old Davis, a market bull since have been 18 insider sellers over the past 12 months, vs. highest years (namely, ’72 and ’73) when multiplied the September 1981, (with the Dow at around 840-850), had only one buyer. And over the past year. Motorola in­ multiple by the average ’S3 earnings estimate to come turned temporarily sour on the market in anticipation of siders have also been dumping like crazy— 25 of them in up with a potontial target price sometime in ’83 or ’84. a brisk selloff. DAVIS AI-SO points out that the supposedly un­ fact, compared with only two buyers. Reytheon insiders For example, the average McDonald’s multiple was Business cautious sophisticated odd-lot short seller — that's the fella have likewise shown a strong inclination to get out — 10 20. Multiply that figure by a $5.50 earnings projection in \ M ) OK HIS clients who might have followed his ad­ dealing in stock transactions of under 100 shares — is of them over the last year (vs. no buyers). ’83 — that’s a conservative number since most are vice — such as Citibank, Morgan Guaranty Trust, the doing virtually very little short selling (a bet on lower Reagan plan Rounding out the 25 recommended stock sales are around $5.70 to $5.80— and you come up with a $110 price states of Texas pension fund and the Putnam and the stock prices);- that's viewed as a market negative since Bally Mfg., Avco, Caesars World, McDonnell Douglas, tag on the stock. It was around 58 V4 at press time. Fidelity funds — obviously would have saved themselves this market player is invariably wrong. Becton Dickinson, Bausch & Lomb, Aetna, Allis Blue-chip explosion money in that day. And still another bearish signal, as Davis explains it, Chalmers, Northwest Industries, Warner Com- .................................................Recent Target 2 The Dow in that session fell nearly 12 points after is the above-average purchases of call options by op­ ..., Price Price Budget shift tnunications, U.S. Steel, Datapoint and Scientific Atlan­ having been down nearly 20 points earlier in the day. tions speculators. Recently, call options have been out­ ta. McDonald’s 58 V4 110 Davis, the head of Ned Davis Research of Venice, stripping put options (a bet on lower stock prices) by a is burden, Sears 28 Vi 44 Fla., told me in a telephone interview that “ for the first 3-to-l margin. 'The normal ratio is 2-1 in favor of call op­ A BIG UUK-'^TION! If the Dow's going to 1,200 as K-Mart 24 % 38 time in 16 months we see a correction coming that's im­ tions. And during last August's bottom (with the Dow at Davis predicts, what are the best bets to accumulate on Amer. Home Prod. 43 % 75 portant enough to raise some cash." around 780), there were some days when sales of puts any given decline? Amer. Hosp. Supply 37 % 70 Basically. Davis sees the Dow over the next six weeks were topping calls. There's no hesitation from our market guru on that Baxter Travenol 46 % 85 falling to around 1,000, a decline from its recent high of Although he's clearly concerned about the market's applauded one: the blue-chip growth stocks. Basically, these are Johnson & Johnson 49 Vi 80 close to 10 percent; he expects an even bigger drop — 12 performance over the short run, Davis isn't advocating says O'Neill the stocks that led the big rally we've had — names like Proctor St Gamble 105 Vi 165 6 to 15 percent — in the rest of the market. And so he's any kind of panic selling. The reason: After the correc­ Kodak, Proctor & Gamble, Minnesota Mining & Mfg. Eastman Kodak 83 Vi 180 telling clients to lower stock holdings in equity port­ tion runs its course, he looks for the Dow to rebound to and Sears. And Davis sees more of the same. Coca-Cola 48 V« 90 Sen. Pete Domenici, R-N.M., who folios to around 75 percent. around 1.200 before year-end. WASHINGTON (UPI) - Key His reasons: (1) Washington's political shift favoring Minn., Mining & Mfg. 78 % 135 HARTFORD (U PI) — Gov. William O’Neill said members of Congress applauded the chairs the Senate Budget Committee, <;i.K.\KI.> , I'll \ r doesn't depict Davis as a IN HIS ANALYSIS of individual stocks, Davis has big business, (2) the strong likelihood that many banks Merck 88 140 President Reagan’s new program of economic new conciliatory stance President said “ I think the whole notion the growling bear . and he's not. But what he is un­ come up with a list of 25 that he thinks ought to be sold — in less than robust financial shape — will strongly Anheuser-Busch 60 Vt no austerity outlined in his State of tbe Union Address Reagan took in his State of the Union budget should increase only by the rate mistakably saying is that it's time for stock market now. This is based on such things as how they're acting favor loans to companies with unquestioned quality, and Schering-Plough 39 V4, 70 Tuesday night could' result in added economic speech, but business leaders were of inflation is a good one." players to temper their enthusiasm. relative to the rest of the market, insider transactions, (3) tfie lagging price gains of the big-name stocks, vs. Syntex •50 Vt 75 burdens to states and municipalities. cautious and some poor people reacted Sen. Robert Dole, chairman of the Senate Finance Committee, agreed Here, in brief, is his argument; the money flows in and out of the securities and some the low-priced stocks, over the last four to five years. Target Price; In 1983 or '84 “ The President stated the obvious problems of high angrily. with Reagan “ America is on the • Long-term Treasury bond yields have essentially fundamental factors (like earnings prospects). Davis For.example, if you busted up the Standard & Poor’s Source; Ned Davis Research, Venice, Fla. unemployment, high federal deficits and high interest House Speaker Thomas O’Neill saw a quit going down; in fact, they're higher now (10.6 per­ rates, but I am concerned about the added burdens “ historic political reversal" in Rea­ mend,” but added “ we’ve got a long cent) than they were last November (10.3 percent) that could fall on the states and municipalities as a gan’s statement Tuesday night that way to go.” However, indigent patients and black despite recent lows in three-month Treasury bills and result of his proposals,” O’Neill said. “ we in government must take the lead staffers at Mound Bayou Community the prime and discount'rates. “ We will have to see details of his budget before we in restoring the economy.” Hospital, a tiny facility in an all-black_^ It suggests, as Davis sees it, that long-term rates may know these impacts,” he said in a statement through O’Neill recalled two years ago town in the heart of the Mississippi have hit bottom, which is certainly not the general Wall T h e figures are in fo r 1982, and once again things looked Reagan had said, “ Government.is not his press secretary Larry deBear. Delta scoffed at the president’s .Street perception. And long-term Treasury bond rates of up for the Savings Bank o f Manchester.