Growth-Stock Investors Stand Pat despite Recent Surge for Cyclicals
NEW YORK -- The long-anticipated rally in cyclical stocks arrived last week in a rip-roaring market advance that lifted the Dow Jones Industrial Average 3.9% to a record 3027.50.</br></br>Money managers, returned from their Memorial Day weekend, began sorting through scraps of economic news and spotted a pattern suggesting the recession was ending, or about to. Not wanting to be caught arriving late to a rally, the money managers quickly bid up shares of companies whose fortunes are tied to the economic cycle.</br></br>On Friday, cyclical stocks led the Dow Jones industrials to a record. Caterpillar gained 2 5/8 to 51 3/4; International Paper rose 2 to 70 5/8; and United Technologies rose 2 1/2 to 46 7/8. Together, these three stocks accounted for almost half of the average's 27-point gain. Meanwhile, big noncyclical growth stocks slumped: Merck fell 1 5/8 and McDonald's dropped 1/4 to 35.</br></br>But even as cyclical issues race ahead, many growth stock investors are standing pat on their portfolios. Cyclicals could well outperform growth stocks for the next several weeks, these investors say. But in the longer-term -- for the next year or two -- stocks of companies that grow earnings steadily 15% or better each year could maintain their leadership. And even in the next few weeks, the investors say, growth issues will keep pace or lag behind just a little.</br></br>"Growth stock managers shouldn't abandon their strategy for a minute," says Stefan Abrams, chief strategist for Kidder, Peabody & Co. Growth companies "will still perform quite respectably," he predicts.