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Indiana's all star stocks.

For the first 10 months of 1992, the market as measured by the S&P 500 index was essentially unchanged. This apparently neutral performance masked price volatility among different sectors and individual issues, which has made both individual investors and professional money managers feel that stock picking in '92 has been as much fun as taking an afternoon stroll through a Kuwaiti minefield.

Indeed, there were a number of stocks that showed good percentage gains in sales and earnings but underperformed analyst expectations. They suffered the same fate as the record number of race cars that hit the wall in this year's Indy 500.

Casualties in this year's Wall Street demolition derby included faded "blue chips" like IBM and General Motors. One group that caused more than one yellow caution flag was pharmaceuticals and medical devices, the "darlings" of 1991. They hit an air pocket every time a presidential candidate outlined his formula for curtailing rising health-care costs, usually through some form of governmental involvement.

One local example, Biomet, declined more than 50 percent from year-end levels through October in spite of 30 percent earnings growth. Eli Lilly did not fare much better and ended October off about 30 percent from its 52-week high.

A come-from-behind stock this year was last year's winner, Conseco, which declined to under $21 (down 10 points from year end) after professor Abe Briloff published a negative article in Barron's on June 15. Conseco may well be the most scrutinized stock in modern history. Investors who bought the stock in late June have been well rewarded, as Conseco doubled by October 30, a 30 percent gain from year end.

Many of the top performing groups TABULAR DATA OMITTED in 1992 were beneficiaries of Federal Reserve largess in the form of lower interest rates. Four of the top 10 Indiana stocks in 1992 were bank and thrift issues. The group was like a Milwaukee beer commercial--it simply doesn't get any better than this. Irwin Financial took the checkered flag with a 10-month gain in excess of 150 percent. Irwin's Inland Mortgage subsidiary is expected to expand its servicing portfolio from $3 billion to $6 billion this year. Other big winners among the bank stocks were INB Financial (up 40 percent as it was sold to NBD Corp. in mid-October) and First Merchants Corp. in Muncie (also up about 40 percent).

Manufactured housing got a shot in the arm from lower rates and Hurricane Andrew. Schult Homes closed up about 98 percent in price from year-end 1991 through Halloween, but still a few points below its 1992 high. Coachmen rocketed 33 percent in the otherwise lackluster market of October after reporting third-quarter per-share earnings of 50 cents vs. a loss of 27 cents.

While it didn't place in the first row, we would be remiss if we did not mention Great Lakes Chemical, which built on its All-Star standing in 1991 with a 20 percent price gain in 1992. Great Lakes Chemical, with its salt mines in Arkansas, was probably partially responsible for President-elect Clinton's Arkansas employment growth statistics. Hillenbrand scored a 36 percent price gain year-to-date as casket sales picked up and Forethought Insurance earnings surged.

In 1993, a gradually improving economy would seem to favor a return to certain capital goods stocks which did well in December 1991, then backed off as economic growth failed to materialize in 1992. The machinery group was particularly strong in the weeks prior to the election. Hurco Manufacturing moved up 28 percent in October, for example, although the stock is down 37 percent for the year.

The rumors of the death of the U.S. economy are greatly exaggerated. The combination of low interest rates and a recovering economy has always proven favorable for stocks. Money flow into equities remains at a very high level because investment alternatives such as CDs provide returns that appear to be only barely above the rate of inflation. Indiana stocks have outperformed the broad market averages this year because the Indiana economy is healthier than that of the U.S. as a whole.

Raymond H. Diggle Jr., CFA, is vice president-research in the Indianapolis office of Robert W. Baird & Co.
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Title Annotation:Investments; stock exchange in Indiana
Author:Diggle, R.H., Jr.
Publication:Indiana Business Magazine
Date:Dec 1, 1992
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