Hitting 3,000 Hasn’t Expended Momentum

Somebody forgot to tell Wall Street about the concept of “follow-through,” as in golf swings and market milestones.

After finally closing above the 3,000 mark Wednesday, the Dow Jones industrial average slipped 5.20 points to 2,999.26 Thursday. Wednesday’s record close of 3,004.46 was too tough an act to top as some investors reconsidered stocks’ heights, traders said.

Still, the Dow traded above 3,000 for much of Thursday. And despite some fears that the first close over 3,000 would smoke out a herd of sellers, trades detected no big change in the market’s mood--even though the dollar surged and interest rates jumped sharply.

“This was the first down day for stocks in six days--so how much can you make of that?” asked Jon Groveman, head of brokerage Ladenburg Thalmann & Co. in New York.

Selling was heaviest among smaller stocks on the NASDAQ market, as one of the technology industry’s most volatile stocks--disk-drive maker Seagate Technology--reported surprisingly bad first-quarter earnings. Seagate shares plunged $4.50 to $13.625.

That prompted selling of other tech stocks. Overall, the NASDAQ composite index of 4,000 small stocks fell 4.69 points, or 0.9%, to 506.62.

Does that suggest that the Dow-3,000 milestone has given

individual investors a sudden case of vertigo? Individuals, after all, have been a key driving force in small stocks’ renaissance this year.

Peter Blowitz, president of Toluca Pacific Securities in Toluca Lake, said Thursday that his firm was “still seeing a lot more buyers than sellers” of smaller stocks. Individual investors, he said, continue to search for “high-tech and biotech stocks that haven’t been ‘found’ ” yet by Wall Street in this rally.

Some of the stocks his firm has been actively trading include San Diego-based electronics firm California Jamar, now at $6.875 a share versus $3.75 at the start of the year, and Fonar Corp., a Melville, N.Y., firm in the magnetic resonance imaging business. Its shares have jumped to $1.50 from 56 cents at the start of the year.

At Pacific Brokerage Services in Los Angeles, President Steven Wallace described his business with small investors Thursday as “incredible.” There is “no dispute that the public is back in this market,” Wallace contended.

His discount brokerage firm is handling about 2,000 trades a day now, roughly double the volume last fall, he said. What’s more, the average order size has been increasing steadily, Wallace said, which he believes is an indication that “there’s a lot more money on the sidelines that’s coming out” now to hunt for stocks.

In San Francisco, discount brokerage Charles Schwab & Co. reported that its investors have been running “even” in buy and sell transactions this month in individual stocks. But purchases of stock mutual funds are running ahead of redemptions by a margin of 1.8 to 1, executive Hugo Quackenbush said.

So despite the Dow’s struggle at 3,000, this still looks like a market with a lot of momentum. Even if we get a sharp selloff soon, odds are that this bull run isn’t over, many analysts said. A lot of investors have only begun to get interested in stocks again. Price declines will probably just bring in a load of new buyers.

‘Growth’ Earnings Come Through: Nobody expected that industrial companies’ first-quarter earnings would look very good, considering that the Gulf War almost caused business to grind to a halt in January. The big question was how well the highly regarded “growth” companies would perform--companies in the drug, food and other stable-demand consumer businesses.

The first-quarter reports out so far suggest many of those growth names continued to deliver, despite the gain in the dollar’s value versus key foreign currencies. Because many of the consumer companies are major players overseas, a rising dollar reduces their overseas profits when foreign currencies are changed back into U.S. dollars.

Even with the dollar, food and tobacco giant Philip Morris posted a 21% rise in earnings per share; drug firm Bristol-Myers Squibb’s per-share profit also rose 21%; International Multifoods (a major processor of flour and other foodstuffs) recorded a 100% jump.

With numbers like those, the attention that has been lavished on these stocks isn’t likely to dissipate soon. At some point, industrial stocks are going to run away with the spotlight as investors bet heavily on an economic recovery. But until more proof of a turnaround appears, investors who want to buy stocks are going to be buying the classic growth names.

Briefly: Leslie’s Poolmart, a Chatsworth-based chain of 90 swimming-pool supply stores in 22 states, went public Thursday. The company sold 2.5 million shares at $11 each. Originally, Leslie’s hoped to get about $9 a share, but the market’s strength persuaded underwriter Montgomery Securities to boost the price. Leslie’s earned 34 cents a share last year--if you restate the actual earnings for the interest the company will save by repaying debt with cash from the stock offering. That gives the stock a price-to-earnings ratio of 32--pretty darn steep. . . .

Shares of Tandon Corp., the Moorpark-based personal computer company that operates mostly in Europe, picked up “buy” recommendations from two analysts this week: well-known technical analyst Stan Weinstein in Hollywood, Fla., and Individual Investor newsletter in New York. Those touts have boosted the stock 20% this week, to $4.125 now from $3.43 last Friday, on heavy volume. The company on Thursday reported first-quarter earnings per share up 9%. Tandon now sells for 11 times its 1990 earnings of 39 cents a share. . . .

The American Assn. of Individual Investors holds its “investment education national meeting” today and Saturday at the Westin Century Plaza in Century City.

EARNINGS: ‘GROWTH’ STOCKS SHINE Earnings at many classic growth firms continued to rise in the first quarter despite the recession--and that’s providing continuing support for the market. Profit disappointments have largely been in the industrial and tech sectors.

Earnings per share: Pct. Company 1st Qtr. ’90 1st Qtr. ’91 change Intl. Multifoods 0.32 0.64 +100% Philip Morris 0.84 1.02 +21% Bristol-Myers 0.78 0.94 +21% Merck 1.03 1.25 +21% Coca-Cola 0.41 0.48 +17% Warner-Lambert 0.90 1.04 +16% Eli Lilly 1.16 1.35 +16% Ralston Purina 0.74 0.84 +14% Amer. Home Prods. 1.00 1.12 +12% American Brands 0.94 1.01 +7%

Source: Companies listed