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Speciality retailers with strong merchandising talents will outperform their competition in 1994 and 1995. Factors such as moderate inflation and a weak US dollar will create a business climate that can be exploited by those retailers with lean, competitive operations. Investments in this industry should be focused on companies that have high ratings for financial strength and that have capital returns that are above the industry average.

A number of influences will affect the performance of the retail store industry. Possibilities such as a weakening of the economy and a slowdown in consumer spending would have a significant impact on the industry's growth. Retailers also have fierce competition for market share, with many of them using value retailing to improve customer traffic. Improvements in customer service and increasing the use of private label will also affect the industry. Investments in this industry will be highly volatile.

The apparel industry has experienced weakness during the Jan-Jun 1994 period and is expected to continue to lag the general market through Aug 1995. However, prospects should brighten for the fall and holiday selling seasons in 1994 as consumers increasingly turn to nondurable goods. Another factor that should benefit the industry is the fact that retail apparel businesses have kept their inventories lean. Additionally, manufacturers of low- to middle-end apparel products should perform better than higher-end manufacturers. Few investments in this industry appear to offer strong prospects for capital gains.

Industry analysts believe that the currently low price for stocks in the home furnishings and furniture market could be a good long term investment. The analysts point out that although interests rates have risen and home buying may have slowed, the furniture industry does not seem closely tied to home sales. The purchase of furniture generally lags behind home buying. However, only one of the 10 stocks listed have risen since Apr 1994. The majority of the rest have declined by double digits.

Industry analysts forecast that the building materials industry will remain strong despite the increase in mortgage rates. Expenditures in commercial construction will rise between 8%-9%. The increase will be generated by more public sector and infrastructure work, public building construction and renovation, and private manufacturing.

The restaurant industry has seen its stocks falter in the early months of 1994. For the most part, this downturn has not corresponded to the relatively stable performances of most restaurant industry fundamentals. One area, however, that does threaten the industry's economic condition is health care reform, which would raise expenses considerably. Growth areas in the restaurant industry include casual dining establishments and value-marketed fast food.

The building materials industry is growing at about the same rate as the residential and commercial construction industries. Residential construction rose by an average of 7%, with the South seeing the highest increase at 13% and the Northeast having an decrease in construction of 1%. Commercial construction grew by 1.2% in 1993 and should continue to grow by 3% to 4% in 1994. Industry analysts believe that the building materials industry is a good investment opportunity through 1997 or 1999.

Furniture and home furnishing stocks have declined by 4% to 11% since Feb 1994, but should do well in 1994. These businesses usually do well once the economy is well into the recovery. One problem that exists include the fact that consumers perceive the price of furniture to be higher than the value. Manufacturers can help to fight this by reducing delivery times, which would take a large investment in new equipment, and by creating brand awareness.

The restaurant industry is forecasted to perform above average during all of 1994, though stocks appreciated at a slower than average rate during the first quarter. Sales have been partly hurt by adverse winter weather conditions. Potential investors will find several timely companies offered. Franchise operations tend to register higher operating margins than company-owned operations.

The diversified retail industry can offer investors with various portfolio goals at least one strong choice. Low interest rates are boosting the housing and home improvement markets. Companies aiming to expand in the unsaturated urban markets or in Canada and Mexico due to the implementation of the North American Free Trade Agreement may be good investment choices. Potential investors should study individual Timeliness ranks.

Retail store sales suffered from the California earthquake and poor weather but should recover by spring 1994. The latter half of 1993 was marked by improved durable spending, benefitting furniture and home appliance vendors but worsening margins for many broad-based merchandisers. Clothing sales should improve in 1994 and durable sales should continue. Because consumers are looking for value, stores with low operating costs should benefit.

Clothing industry stocks have been dropping relative to other industries, partly because of poor weather, high inventory and low sales. While the North American Free Trade Agreement could help turn the situation around soon, the industry will remain volatile. Potential investors should choose stocks with Predictability Ratings of 65-100, Financial Strength ratings of B plus or higher and average Safety ranks of 3 or higher.

Furniture and home furnishings industry stocks should perform well in 1994. New home construction and the higher sales of existing homes generally forecast sales of new furniture. However, analysts believe that new home owners may be taking advantage of low interest rates and spending all available cash on homes with none left over for furnishings. Sales of home furniture increased by 10% in 1993. Sales of office furnishings are expected to increase as well since many companies are investing in ergonomic furniture.

The building materials industry is likely to be a good investment through 1996 or 1998 since low interest rates will allow renters to purchase homes and the Congress will be allocating money for infrastructure. Housing starts have increased and the resale market has also shown some gains. People who buy resale properties generally remodel them. Furthermore, the Intermodal Surface Transportation Efficiency Act has been granted a budget of $18 billion to work on the US's bridges and roads.

Restaurant stocks may be a favorable choice for conservative investors who do not expect high dividends. Industry stocks rose 7% on average between Oct 1993 and Dec 1993 when 14 of 19 tracked companies saw share prices rise. Companies such as Pizza Hut that have catered to consumers' demand for value-priced products are proving successful. One looming industry uncertainty is potential rising labor costs under the Clinton administration's national health care reform plan.

The apparel industry stocks are not timely for investors to buy in Nov 1993, due to the weak economy and its effect on consumer buying habits. The North American Free Trade Agreement will help the industry grow during the 1990s as tariffs and quotas are gradually eliminated between Canada, Mexico and the US. Larger apparel firms will fare better than smaller companies because they have the money to invest in the technology that enables them to offer quick response automatic refill strategy.

The specialty retail industry will improve during the 1990s, as retailers continue to streamline their businesses and use high technology to keep inventory low. The economy seems to be improving in Nov 1993, and consumers are beginning to spend again. Another indication of consumer confidence is in the show of colored apparel planned for spring 1994. The stocks within this group should do well from 1993 to 1998, as retailers establish better working relationships with manufacturers.

The retail industry is improving with a stronger than expected 1993 holiday season, beginning Nov 1993, and industry stocks are reflecting optimism. Retail stocks rose 10% from Sep to Nov 1993, and two-thirds of the firms' securities experienced gains. Retailers have streamlined their operations and have kept prices down by entering agreements with suppliers. Lower prices and value-for-the-money will be key themes among retailers during the decade. However, the stock group is volatile and investors should invest with caution.