Wall Street Week with Louis Rukeyser; 0541; Electronic Profits?

Yeah. They're on the record for Public Broadcasting. You. Do. Wall Street Week produce Friday May 7.

Your host for Wall Street Week is Louis Rukeyser. Our panelists are Frank can't be alone. Howard Piccoli and Dan Dorfman. Tonight's special guest is Benjamin Ambrose a senior electronics analyst. Morgan Stanley and Company Incorporated. Good evening I'm Louis move guys or this is Wall Street Week. Welcome back. The action was so jazzy on the political front this week that the stock market almost forgot to do business. Instead it wandered aimlessly around the Maypole at a pace so leisurely and inconclusive that it seemed less like New York New York than Mary Hartman Mary Hartman with a without cocaine. It was not that there was a shortage of economic news it was just that the financial gang found it hard to get excited about it one way or the other. The Federal Reserve board indicated that it was going to pull back a millimeter on the growth of the money supply and that cause some

jitteriness until someone noticed that the supply had been growing awfully fast. Wholesale prices turned in their worst performance in six months and that wasn't good. But Wall Street finally shrugged and said nobody really expected the dramatically low results of recent months to continue. Also on the less than euphoric side the unemployment rate held steady. And after that's after five straight months of declines. But even this was cushioned by the knowledge that the rate has now gone seven straight months without an increase for the first time since 73 and that total employment. The number of Americans working is at an all time high. Wall Street couldn't even get too interested in the plainly good news such as the fact that Saudi Arabia's shaky Amani happened to be smiling this week instead of frowning or that new factory bookings boom more than they have in any month since last July. Like practically everybody else in the country Wall Street just couldn't take its eyes off the political scene

or decide what it all really meant. A week ago the big question it was asking was who's going to run against Ford. This week the question suddenly became who's going to run against Carter. Don't forget to tune in next week. Already it would seem the former Georgia Governor has done more for the American toothpaste industry than all the fluoride in Madison Avenue. Well Mr. Ford for his part is trying to convince the nation that Ronald Reagan is a dangerous Hollywood outlaw seeking to play one last role shootout at the Panama corral. It's a scenario changing so fast you need a pocket calculator to keep it straight. So tonight we're going to sharpen our focus on the electronics stocks with a guest who will at least semiconductors through the wilderness. But first let's punch up the results of what little actually did happen this past week on Wall Street and the Dow Jones Industrial Average tells the very story as well as anything in a week that included the third slowest trading day of the

year beaten only by January 2nd and last Friday the average dawdled to an almost imperceptible loss at nine hundred ninety six point two to one and the same sense of going nowhere was evident in the wider composite indexes of the New York and American exact exchanges and the over-the-counter market. Speaking of pointless neutrality the elves who compile our technical market index and who gave us a straight sell signal not long ago seem to be scurrying now to the safe middle ground presumably on the theory that an elf in the middle is hard to find. Not at all hard to find are our panelists who for the most part have been bracing themselves for a downward correction that somehow keeps failing to Iran. Could it be that yes maybe it ain't going to come. Thank you. Well what do you think. I might get gray waiting but it's quite possible though that the likely scenario doesn't occur and it may surprise us when it does occur.

That's it. You baffle find. You know you want I am sort of baffled because I would have expected this market to have gone off on some bad news but if this digests it properly the bad news is still to come the rise in short term rates. But I think most sophisticated people now realize that you have to have a rise in a prime. Interest rate they charge the top customers you have to have that in order to have a recovery. Do you think the market is paying much attention to this political race in terms of reacting one way or another Was it nervous about any of the candidates. It could be. If Carter by this time in September were the kind of unknown he is right now the market hates uncertainty. But you know this thing is turned so quickly that Ford could end in a burst of strength too. It could be possible that in the next two or three months Ford President Ford could become a very popular figure. I'm betting on that because I think that would be the best

scenario for the stock market. Politics excluded. He's a known quantity called homeless people in this political bent. Do you think the market has any bias. Do you agree with Frank that the market will be helped by a Ford explained by fortune and to the extent that Ford is unknown I think Frank was absolutely right when he said The market hates uncertainty and to the extent of both Reagan and particularly Carter are unknown the market would act badly if it looks like they were going to be elected or the candidates for it is a pretty known quantity. But I think it's too uncertain at this time to say what's going to happen in terms of the various party candidates. What do you think about this dead center market how long is it going to stay there where you think it's going to go. Well I think that the behavior the market itself Lou is a factor where it is the market's been through a thousand back five times since February and that near in decisiveness in the last few months indicates that. You can't get a strong chart pattern out of it. And there's a lot of backing even I think that the greatest concern now is what's going to happen to inflation rates. Inflation rates are lower than we thought they would be at this time. I think generally and the

concern is with the you mentioned the wholesale price index but the commodity index figures which released this week are up at a 40 percent annual rate. And that's got people worried and they're concerned about what long rates will do. And as an index of what inflation so I think people are holding back to see if the earnings momentum comes through the first quarter was excellent. And secondly to see if the outlook for inflation in the next couple of quarters next couple of months is going to get a worse among the policy of not you have seniority and waiting for a downward correction we've been waiting for two months. What do you make of this market. Well I'm going to probably shock you. You know our selves. Most of us have been a bear because I felt the consumer with the fact of the matter is the consumer is spending and spending aggressively. And I think toward the end of the year we're going to see a pickup in capital goods spending which will keep the momentum going and I'm going to see it for the pickup in housing. So therefore

I think we're looking for a rising market. But let's pursue the point you've raised certainly the consumer spending figures have been among the best of all economic indicators in recent months surprising some people who thought the pessimism and gloom we're going to be the mood of the country. Why do you think people are feeling better as a poll this week that indicated more than half the country now thinks times are pretty good. Well I think obviously you have inflation down the rates of inflation. You or you also have an increased employment. You know look at the look at today's figures when we saw record employment in the United States. I think I think there's more there's more confidence on the part of the part of the consumer and I think the consumer is just spending. I think the consumer wants to spend doing just that. And finally do you share the view which Frank and Pete have expressed but which some people disagree with that Carter scares the market. I don't really think so. I don't believe it does I think people are more concerned now with the rudiments of the economy where it's going. Interest rates monetary affairs there's no extreme can on the horizon as I see it now.

OK. In any event it's time now to turn from this stalled market to our rapidly accelerating corps of viewers and answer some of their questions. Frank Caprio Mr. Mrs. Francis am Comber of Maysville Kentucky describe themselves as addicts of this program and wonder why we never talk about companies that cater to another form of addiction. The tobacco firms we raised tobacco sell it smoke it and invest in it. They write and think it is pretty good to us. Since those are probably the kindest words that will be said about tobacco on television in 1976 would you tell the combers what you think of their stocks. Well tobacco stocks are good stocks in uncertain times basically because they do have identified warnings trends stability of earnings and also they usually carry good yields in a bull market such as were in where recoveries rapid industrial stocks they become laggards and they become laggards because there are other places to invest your money. Nevertheless there are some interesting

tobacco stocks that do carry some decent yields and there are still probably good investments. Philip Morris impresses me not because it's tobacco stock only but because it has a good beer company Miller beer and R.J. Reynolds carries a decent yield and has good prospects so I think there are good stocks keeping a portfolio will do well eventually. But now the industrial stocks hold sway. OK let me throw in the last button the package of. But don't always assume that our panel's recommendations are right. Unless you want to see your savings go up in smoke and make a complete ass of yourself. Richard Lee you of North Vancouver Canada wonders what the investment possibilities are for North Americans in euro dollar bar. Would you begin by telling us exactly what they are. Well the euro dollar bond is simply a bond that is sold in Europe to Europeans. And I don't think at the moment the European Euro dollar bonds are very attractive relative the opportunities in the States and the reasons are first at the rates that you can find in the U.S. are as good or

better than you can get in euro dollar bonds. Secondly the liquidity of the bonds the ability to buy the set by the reseller bonds after you own them is not as great in euro dollar bonds as there is here. Thirdly euro dollar bonds are not regulated by the FCC. So you have don't have that protection. And another factor is that Americans cannot buy euro dollar bonds on the offering. They must wait about 90 days because they're not issued approved by the FCC. Another factor is they are bearer bonds meaning the bond must be presented to get the interest which means the bond must be for practical purposes left in Europe with a custodian. And for someone who want to use it for collateral say other unpractical So I would say for the typical investor he should leave euro dollar bonds alone. For the instant sophisticated institutional investor perhaps OK Dando off man can you help Louis Greentree of Richmond Virginia who writes as follows. To whom a stockholder go for information when his listed stock is temporarily not

traded in almost two months of elapsed and no word has been given to stockholders from the company involved. My local broker has not been able to give assistance even though he has tried. May I have your advice. I'm afraid Mr. Greentree you're somewhat of the blind that there are several things that can be done. One I believe you could write to the company itself or call the company. If that isn't satisfactory perhaps you can write to the exchange in which the stock is listed on. A third alternative perhaps might be to write to the Securities and Exchange Commission. And of course this is one of the considerations you might want to go to church and pray for. They've given him a lot of comfort. If you can find a listing for your stuff if you can find it but don't like what it says. If you have any other questions about investing just send them along to us at. Wall Street Week Owings Mills Maryland 2 1 1 1 7. That's Wall Street Week Owings Mills Maryland. 2 1 1 1 7. Now before we meet tonight's special guest let's talk for a moment about one

of the authentic wonders of the modern world the semi-conductor which not only has made devices like this pocket calculator possible but has made and lost more Wall Street fortunes than even this machine can calculate. Semiconductor is called semi because they carry energy one way only represent perhaps the most dramatic technological advance of this generation. They are highly sophisticated electrical valves whose tiny size and prodigious capacities have made possible a range of wonders from space travel to digital watches to electronic pong games and their stock market performance lately has been like ping pong to a reference let's chart the year by year performance of the Standard and Poor's index of 500 stocks since the start of 1974. After forming 30 percent and 74 the S&P 500 has come back until it stands now about 3 percent higher than its starting point. Now let's follow the average price of the five leading

semiconductor stocks followed by our guest Fairchild camera Intel Motorola and National Semiconductor and Texas Instruments. They've moved at electronic speed in both directions down nearly 50 percent in 74 then charging back until they stand now more than 50 percent higher than where they started. Why have these super volatile stocks staged such a comeback. One answer may lie in their earnings prospects on average according to tonight's guest. The earnings of these five companies are expected to rise this year by fully 50 percent and to follow that next year with another 45 percent increase. Put that in your electronic memory. What makes him so sure that semiconductors will keep on booming. And is this something Wall Street already knows. Or are there money making opportunities for calculating humans. For some answers let's go over now and meet tonight's special guest Benjamin M. Rosen.

Than look like you could be. Thank you. Benjamin Rosen is the senior electronics analyst for Morgan Stanley since last August. But his bimonthly electronics letter became famous in the industry long before that. During the decade he served as a general partner and director of research for Coleman and company Institutional Investor magazine calls him the best electronics analyst in the business. From a technical point of view Mr. Rosen should know whereof he speaks. Two of his three degrees are in electrical engineering and before becoming a Wall Streeter he was vice president of quantum science corporation and an electronics engineer with Sperry gyroscope and Raytheon. Then semiconductor stocks have just seen certainly been on one of Wall Street's wildest roller coasters. Which way do you think they're heading now and how fast. I think were about half way in this current semi-conductors cycle I think we still have fully a year left of appreciation in the group.

At that point do you think we're going down you said cycle. Do you feel the movement and even Well this group really is a cyclical growth industry and historically each peak has been higher than the previous peak. If one thinks that the economy is going to cycle again in two years or three years I think the semiconductor industry will also. Well what's your overall economic appraisal what's the plan like in which you make this point. We're looking for a very strong 1076 very strong 977. And an unclear 978. Even with the way the economy has behaved in recent years these stocks have been especially volatile. Why is that. I think the reason is that they're looked at by investors as growth stocks. And when it is discovered that they do have a cyclical content This comes as a surprise every four years. And as a result the there is an overreaction on the downside.

As of now is it too late to climb aboard as some of them still look like girl. We think it's a matter of fact the entire group looks very well situated for the next year both the primary and secondary stocks. Would you run down some of those stocks and tell us individually which ones you particularly well our primary recommendations are Intel which is over-the-counter Texas Instruments and National Semiconductor. Lately you've turned a bit sour on Fairchild camera why is that. We removed Fairchild camera from our purchase list. About six months ago but I think their fortunes are improving nil and I think that they as well as Motorola and the other stocks in the group will perform well over the next year. I got a little confused when someone told me we moved if my purchase list does that mean you'd sell it. It did mean that yes in other any semiconductor stocks that you'd sell now if you want to know. We think the dynamics of the industry are just too strong for the next year we're looking for

semiconductor shipments this year to be up 30 percent next year to be up another 30 percent. It's a leveraged industry. Profit margins are probably going to exceed historically high margins in the cycle. You singled out for a favorable comment Texas Instruments Intel National Semiconductor and what do they have the other stuff. I think there are three things within the group that I look for that are important besides the cliche of good management. They have to have super technology an excellent production capability and I think those three companies qualify on all three counts. Ben addition to giving my usual disclaimer that your views are your own that other analysts may have other views I think it's only fair to point out that your market timing has not always been perfect. One of your clients was quoted as saying that you've been bullish nonstop since 64. Is that accurate to start with. I plead guilty. Is it just possible that some a conductor stocks of them may be heading for a dive soon in the expect. Well I might add that in 1064 National Semiconductor was a dollar and today it's

$44. Texas Instruments was 20 and today it's one hundred twenty. So I am guilty of this so you think that the sales along the way were not as smart as the people who held on to them. One of the characteristics of a true growth stock as opposed to a pseudo growth stock is is that if you do hold it long enough you will win in the end. And we've concentrated so far on the semiconductor group they're certainly the most glamorous but are there other stocks in electronics area in which you have strong views right now. I'd say the other stock which we feel very strongly about is in the instrumentation area and that's Hewlett-Packard. Which is certainly one of the finest technology stocks that I know. When you say that you're high on these stocks you think that the current approach is they have appreciation possibilities. But how about a year from now when you think we have it and I think we would have to reassess it a year from now. It's time for me in any event to take the semiconductor chip off my shoulder and pass it on to our panelists standing with the electorate Mr. Campanella. Thank you Lou. Ben

one of the problems of the industry it seems to me is they start out with a high priced product high technology becomes a commodity and everyone's working on very thin margins out digital watches. Apparently has a vast market but is anyone really going to make big money in digital watches. The consumer products based on semiconductors the calculator being the first the digital watch the second the TV game will be the third and I think they'll be others beyond that. Yes there are periods of two to three years where substantial profits are made. But then I think there was a shakeout and. The secret for success is developing new products to layer on to the ones that mature. Been. One of the things that's always intrigued me about the entire technology area is that considering the size of the industry in America but given so few companies in the technology business that have put together a long term growth record year after year providing up of earnings a few

companies have done it right in the computer industry. Why is it that considering the size of the industry the technology energy in America so few companies have done it. And does this mean that an investor in technology stocks has to be a good buyer and seller to catch companies in the right time in their cycle. I think the the only successful investments in technology have been made in a very few companies. And I think when one goes outside those companies that meet those criteria I described earlier it is difficult to make money in them. Some of the companies I mentioned earlier are actually selling below the prices they sold at 1066. So I think selection within the technology group is extremely important. Texas Instruments has grown at 17 percent a year for two decades. Hewlett-Packard is a group of 18 percent a year for two decades. And I think those are the types of companies that the investor should focus on. But very few of us.

But I know you don't believe that stocks go up forever. But the fact of the matter is that National Semiconductor and Intel two of your favorite stocks were up over 300 percent in the last 16 months which essentially is five times better than the market that well selling over 30 times earnings as a sex instrument how do you recommend those stocks now. I look at it differently than two years ago adjusted Intel was 56 and today at 70 It just happened to go to $10 along the way. And National went from thirty six to six on its way to 44. They did go to artificially depressed prices I believe. I think their values though are very realistic based on this year and next year's earnings. One of the remarkable features about the semiconductor industry in addition to the volatility to which Dan just referred is how much they have brought down the cost of their products a rarity in the inflation of the. Transistor costing twenty dollars 960 now has a job done by a much smaller transistor that might cost a tenth of a penny. Other

dramatic technological advances like that still in store. Yes we're really I think at the beginning this is almost a new industry it's only 28 years old. I think we have really barely scratched the surface of what can be done with semiconductors. The secret of growth is what you describe constantly lowering costs which offer constantly lowering prices. And I think. The technology is in place to keep prices going down for at least the next decade. I gather that the hot new word in the industry is microprocessors would you define it for us and tell us why it's hot. Yes the microprocessor is not simply a full fledged computer on a single chip of silicon about a fifth of an inch by a fifth of an inch. And it is a revolution in computation. It allows you to have a computer for the price of about $10. And I predict Louis that five years from now you're going to have a microprocessor in your home. In your car. On your wrist in your telephone and

perhaps in other places. Well I certainly hope not. Are any of the companies you mentioned particularly well-positioned to take advantage of them. There is no question that Intel which is the inventor of the microprocessor dominates the microprocessor field ill will probably dominate the microprocessor for years to come. I think it is probably the most exciting development in technology that I'm aware of. Frank was talking about the digital watches any of these companies particularly well fix that the the dominant factors in digital watches are Fairchild camera Texas Instruments National Semiconductor and Hughes Aircraft which is privately held. Right now getting back to what Dan said. While it's true that National Semi is only up marginally over its previous high for it those who saw it go from thirty six to six may have had some heart attacks along the way. Right. Is this group in fact too volatile for the average investor.

I think it's extremely volatile and I think that the average investor should be quite hesitant before investing in the group. The rewards are great but the risks are also extremely great. And if he doesn't vest you would recommend I gather that he paid cash in hand on that night. In the leaders yes. What could happen that would change you are generally euphoric appraisal of this group. Could there be new developments that we now can envision. I think the key to the end of the semiconductor boom will be when costs and prices stop going down because when they stop going down the markets won't keep expanding. And I don't think that is in sight. Of any other major changes we look for in this group in the next decade. Just continued growth and continued or increasing importance of the microprocessor is perhaps the most important semiconductor based development.

When we start having them in all those places you mentioned. It's already started this year it's going to be about one hundred fifty million dollar industry just microprocessors by the end of the decade or they'll be perhaps a 700 billion dollar business. Thank you for a dazzling look into the future I know at least those who. Hold or think about semiconductor stocks hope you're right. Thanks to our panelists and I hope you'll be back with us next week when we take a look at an important group of investors who may not even know that's what they are. I'm talking about union members and my guest will be duff Kennedy and advisor to union pension funds. It should be fascinating to explore that uncharted area where Samuel Gompers meets J.P. Morgan. Meanwhile this has been Wall Street Week. I'm Louis Rukeyser. Good night. If you would like to obtain a written transcript of tonight's program send $1

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