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Tobacco industry securities declined sharply in the 1st qtr 1996 but experts are predicting that the industry will have high earnings and prices for the next six months to one year and probably for several years beyond 1996. Tobacco industry expansion into new or developing foreign markets should offset and surpass the negative impact of Liggett's liability case settlement, the anti-tobacco furor that has caused pension funds to stop investing or withdraw from tobacco companies, and an increase of state government suits to recover Medicaid costs. Tobacco industry stocks are a good investment for those who are willing to risk litigation outcomes.

The alcoholic beverages industry, while generally profitable, has experienced small growth as an entity and while a few companies have shown considerable growth in sales and profits, many others have shown flat or declining growth. The industry is expected to underperform in 1996 although some companies may perform well as they push for growth in the international market. Investors should consider individual companies rather than rely on the industry as a whole.

The household products industry is not as resilient as it used to be and its stocks are not as wise an investment as they used to be. Its profits are not growing as effortlessly due to a decrease in consumer demand for housewares. Mass merchants are forcing manufacturers to follow their demand guidelines. Consumable products companies are wiser investments.

Paper prices have decreased from Jan 15-Mar 30, 1996 and profits are not expected to be high during 1st qtr 1996. The downturn in prices from 1990-93 had companies attempting to recoup their losses with major price increases between Jan 1994 and summer 1995. Investors should not purchase these stocks because prices are not expected to increase.

A stronger economy, lower interest rates and more home sales will benefit the furniture and home furnishings industry. Sales have not been good during the 1990s for the industry. Furniture and home furnishings stocks are not expected to do well during 1996. Investors will need to wait a few years for any changes for the better.

The defense budget for FY 1997 includes only $60 billion for weapons procurement, which many believe is barely adequate. Congressional leaders, however, have promised an increase of $9 billion-$14 billion. Industry consolidation is encouraged by decreased defense spending and more mergers are expected. Recovery in commercial jet orders is also continuing in 1996. Investors must select aerospace and defense industry stocks with good timeliness rankings for growth.

Potential investors in the environmental services industry should examine individual stocks for timely choices. Different segments of the industry are experiencing different conditions, with many of the waste hauling companies hurt by declining profits, and smaller companies in the hazardous waste treatment industry profiting from the rapid consolidation of the industry. Ionics is well positioned out to 2001 in the expanding water purification service segment.

Short-term investors in the restaurant industry will likely be disappointed in the 1st qtr 1996 but find earnings better in the spring. Longer-term prospects are better for the industry, as the trend among two-income families to eat out continues to gain momentum. Three rapidly growing specialty chains are being tracked for the first time by Value Line: Boston Chicken, Papa John's International, and Lone Star Steakhouse and Saloon.

Potential investors will find the industrial service industry, which includes temporary employment agencies and janitorial services, above average in earnings potential. The majority of equities listed experienced steady stock price increases since Dec 1995 due to employment increases, the trend towards corporate outsourcing, and other factors. Personnel placement and uniform services are among the most timely segments of the industry.

The soft drink industry is expected to grow in 1996, especially in the international market. India, China, and Eastern Europe are among the more interesting areas of expansion for Coke and Pepsi, but Mexico's devaluation of the peso has made this a problem market for both companies. New forms of packaging has been one growth factor, also. These stocks can be expected to outperform the market for the next three to five years.

A favorable product mix and higher pricing allowed the tobacco industry to increase earnings about 14% in 1995, and this is expected to continue in 1996. Privatization and proximity to other former Soviet-bloc nations has made Poland the third-largest tobacco market in Europe. The investment community is also now less concerned about the industry's legal problems. These stocks will outperform the market in the next six to 12 months.

The alcoholic beverage industry faces a different set of challenges in 1996 than what it faced in 1995. Increased beer prices and lower packaging prices are positives for brewing companies, but consumer demand is difficult to forecast. Germany and Japan will also be difficult markets, especially for distillers. These stocks will underperform the market in the next six to 12 months, but there is three to five year potential in the overseas market.

Prices are declining in the paper, pulp, paper and paperboard industries as manufacturers attempt to maintain market share. Capacity for both paper and paperboard is expected to increase by 2.5% per year through 1998, with paperboard rising the greatest. Earnings will increase for lumber companies with fewer Canadian imports. Investors must be cautious when selecting these stocks, although the industry is timely in 1996.

Stocks in the household products industry are no longer as defensive as they once were, and have a low timeliness ranking for 1996. Computer-based inventory models are now widely used by retailers and product inventories are not as highly stocked as before, and consumers are not spending at previous levels due to personal cost-cutting. Investors should consider these stocks only on an individual basis.

Delayed home buying and furniture purchases by consumers caused share prices in the furniture and home furnishings industry to drop in 1995. Lower interest rates are expected to have a positive effect, however, in the future. Most manufacturers have high fixed costs, even with the impact of automation on workforce reduction, waste, and accuracy. There are very few timely stocks in this industry for investment in 1996.

The aerospace and defense industries are cutting costs and consolidating with decreased military spending. Westinghouse is planning to sell its military electronic business, and Boeing and McDonnell Douglas may merge. The Pentagon is planning to purchase more C-17s and commercial jet airliner orders have increased. Investors must concentrate on timely stocks in these industries and diversify their financial commitments.

The restaurant industry is comprised of the casual dining, family, and fast food segments. These segments have been showing divergent trends in the last three months of 1995. Fast food chains are having the best results, family restaurant earnings are more mixed, and casual dining chains are seeing slower sales. These stocks are average investments for 1996, but several, such as McDonald's and Applebee's, are timely.

Steady earnings are expected for the industrial services industry in 1996, due mainly to solid US economic growth. Demand for industrial services to save money through outsourcing will also increase. Supplier reduction, consolidation, and competitive advantages of size are the major industry trends for 1996. These stocks are timely investments and are expected to outperform the market for the next six to 12 months.

Price drops for corrugated cardboard and old newspaper have hurt earnings for waste-haulers in the 4th qtr of 1995. They will benefit in 1996 from EPA waste-volume and landfill regulations, as well as from a growing economy, however. Demand has increased for water purification due to ultrapure water requirements in the food and other industries, but remedial services may not do well. Investors must select timely leaders among these stocks.

The pending decision in the Castano nicotine addiction class action suit will be significant to the industry. In other legal matters, Capital Cities/ABC has agreed to settle its case, and the public comment deadline for proposed FDA tobacco rules has been extended. The domestic market is declining, but international sales increase. These shares have earnings momentum, but are risky for conservative investors.

The alcoholic beverages industry is changing through retrenchment and diversification. Anheuser-Busch is divesting Eagle Snacks and Campbell Taggart, while Seagram has purchased an 80% interest in MCA Inc. Beer industry shipments declined .3% in the first nine months of 1995, but the market is improving and spirits will have a healthy 1996. The industry will underperform the market in 1996, but has potential for the future.

Volume grew more than 6% in the soft drink industry for the 3rd qtr of 1995, but gains will return to the 3%-4% level in 1996. Market share gains for new products accounted for some of the growth. PepsiCo and Coke still have the largest market share, even with industry consolidation. International sales are growing with the exception of Japan and Mexico. Shares in the soft drink industry will outperform the market through 1998-2000.

The pulp and paper industries are in recovery, and pulp manufacturers are attempting to increase prices for the ninth time since 1993. Abundance of supply over demand may have an effect, however, and paper production is not keeping pace with paperboard. Most lumber prices are above their three-year lows, and panel products are strong. Earnings will peak in the next year for this industry and investors should focus on coated papers and newsprint.

Household products historically have been defensive, with relatively stable profits compared to other industries. Uneven earnings have changed the appeal of these stocks, however. Hard goods, such as small appliances, and soft goods, such as toothpaste and soap, are the two main subgroups of this industry, both of which are seeing less demand. Investors in this industry need to evaluate these stocks on an individual basis.

Furniture industry stock prices have underperformed the market since 1994 due to sluggish sales and high fixed furniture plant costs. Several companies are installing computerized and state-of-the art equipment to modernize their facilities. Furniture orders are smaller, however, since retailers are reducing inventories. These stocks are not timely and investors will find few selections in this industry.

Restaurant industry stocks have a mixed performance record for the Jun qtr of 1995. Same-store sales, a common measure for restaurant results, appears to have softened since Jun 1995, and this could cause problems for some of the weaker companies in this competitive industry. Several stocks, however, will outperform the market in 1995 and 1996 and investors should select those with good balance sheets and successful operations.

Stock prices in the employment service sector of this industry have risen due to a 40% earnings gain in the Jun 1995 qtr. Overseas operations of US corporations, diverse income sources, and outsourcing of human resource functions allows this group to have good results. Revenues and earnings for the essential services group continue to be solid as well. These stocks will outperform the market through the 1990s.

Stocks of the environmental industry are rising due to good revenues and earnings since 1994. Acquisitions, restructuring, and price relief are also benefitting results. Higher recycled paper prices are aiding the recycling sector, new operational requirements are bolstering landfills, and water treatment is in demand. Investors need to select timely stocks that have gained operating efficiency and technological leadership.

The tobacco industry is facing legal action at federal and state levels. A federal suit has been filed on behalf of addicted smokers, Florida is attempting to recover Medicaid expenses, and the FDA is drafting underage smoking rules. Sales and earnings are increasing, however, due to increased non-US markets and other factors. These stocks will outperform the market in 1995 and 1996, but are too volatile for conservative investors.

Soft drink sales are expected to continue growing at a 3%-4% rate through 1995 and 1996 in the US. International sales, especially for PepsiCo and Coca-Cola are expected to do better. Non-cola brands are strong, even though Coke and Pepsi have increased market share, and industry consolidation is increasing competition. Soft drink industry stocks will outperform the market for the next three to five years.

Unfavorable weather, California's weak market, and higher raw material prices are lowering brewing industry profits, with reduced discounting and higher prices the major responses. Premium brand consumption and increased business in Asia and Latin America are two positive factors for distilled spirits companies. Alcoholic beverage stocks will underperform the market in 1995 and 1996, however, and investors should be cautious.

Household and consumer products have usually been considered defensive stocks when the economy is weak. Consumers purchase smaller, rather than larger items when economic prospects are poor. However, better inventory management by retailers, order pattern changes, and other factors have made these stocks less attractive. Even though earnings potential are high for some, investors should approach these stocks with caution.

Sales of home furniture and furnishings are low, due to slow home sales and low consumer confidence. Office furniture sales, however, are rising, with individual company increases from 8% to 17% in the first half of 1995. Home office furniture is becoming a larger segment of the industry. This industry is not timely for the 1990s and is not expected to improve quickly. Investors should concentrate only on the most promising areas.

Stocks in the paper industry have outperformed the market since June 1995. The balance between demand and supply of most paper grades is favorable and prices are expected to rise 5% in Oct 1995. Kraft board, boxboard and linerboard prices rose 30%-50% over 1994 prices, and lumber and other wood product prices also increased in June 1995. Stocks with favorable pricing forecasts are recommended for investment.

The defense-aerospace industry boosted earnings 25% between 1992 and 1994 through aggressive cost cutting, despite sluggish sales of 2%. But these gains will level off if government contracting activity does not pick up. Investors are advised to concentrate on companies that rank 1 and 2 for timeliness, particularly those with a strong commercial airline orientation since demand in this segment will accelerate by 1998.

Earnings are recovering for the environmental industry in 1995, especially for landfill operations and waste hauling companies. The increase in volume will only be moderate, however, for the next three to five years and earnings increases will be slow. The hazardous waste sector is mixed, but there is greater demand for water purification. Investors will find some attractive stocks for the next three to five years.

Stocks in the employment service sector fell, due to the loss of US jobs in April and May of 1995. However, these stocks may not underperform the market as a consequence of diverse revenue sources, overseas profits, and outsourcing by US firms. This sector should have moderate growth in the latter half of 1995. Investors seeking long-term gains will find stocks of value in the employment subgroup of industrial services.

Restaurant companies have been expanding in 1995, due to lower interest rates and other factors. Fast food chains have been actively expanding internationally, and casual diners have planned theme chains. The industry has become volatile, due to US economic slowing and fears of possible recession. These stocks are now rated average, but several are of interest to investors not looking for immediate income.

High earnings are anticipated for the alcoholic beverage industry in 1995. Costs for packaging, such as aluminum and corrugated box board, is the main impediment to profit growth for small brewers. New products are also seen after the 1994 introduction of iced beers. China, Brazil, and India are generating a larger market share at the international level. Anheuser-Busch is the best investment for the next three to five years.

The soft drink industry is expected to grow 3% to 4% in 1995 and 1996. New products and alternative beverages accounted for about 33% of growth in 1994 and 1995. Several companies, such as Coca-Cola and PepsiCo, are doing well in the markets of India, China, and Eastern Europe. Industry consolidation is expected to continue. Soft drink stocks are expected to outperform the market and appreciate in price through 1998-2000.

Higher prices are expected to help the paper industry, and further gains should stimulate sales of coated paper products and newsprint. Nevertheless, only a few paper companies are considered good investments in 1995. The wood industry remains slow because of curtailed construction. A short season upswing may occur, but a general decline is expected to continue until the end of 1996.

Household products industry stocks are considered a safe investment because even in a poor economy consumers usually buy soap, detergents, and toiletries. Well chosen stocks in this group should continue to provide good value, but not startling results. The trend of retailers' pressure on suppliers to replace inventory constantly may spread to cyclical industries.

Stocks of companies in the furniture and home furnishings industries are expected to decline further in 1995, after dropping about 35% in late 1994. However, makers of office furniture report growth in the market for home office equipment. Also, sales of furniture components such as hardware remain high. In spite of low share prices, the furniture industry may not be an attractive investment at this time.

The homebuilding industry is expected to slow down because of increased interest rates, but investments in the industry should be profitable over a number of years. The number of unsold homes is expected to rise, after growing to a 6.4-month supply by Jan 1995. Companies such as Centex Construction Co will probably report a 10% drop in homebuilding orders for the 1st qtr 1995.

The recovery in annual net orders for jetliners, which totaled 149 in 1994, cannot be forecast for 1995 and 1996. The 1994 5% rise in airline traffic and load factors indicates new jetliners will be purchased by the end of the century, however. The Congress elected in 1994 is not likely to increase defense spending to a major extent, and investors should be cautioned to evaluate and select stocks in this group with care.

The improved economy has helped restaurant earnings in 1995, but higher interest rates, supply costs, and labor shortages may hurt the industry for the rest of the 1990's. The possibility of a higher mandated minimum wage and national healthcare kept restaurant stocks low for 1994 and 1995. Several stocks should outperform the market for 1995 and 1996 and may be attractive for those not seeking immediate income.

Employment agencies have not been hurt by the Feb 1995 5.4% unemployment rate or the shortage of temporary employees, and will be helped by 1995's economic slowing. Companies that provide needed services, such as pest and termite control, do well in 1995 in spite of economic cycles. Particular issues in this industry have good earnings potential for the rest of the 1990's and should be evaluated on an individual basis.

Environmental service stocks have been depressed since 1990 due to weak earnings and prices. Mergers, corporate restructuring, and stronger demand has led to better financial performance since 1994, especially in water treatment and hazardous waste stocks. Improved timeliness for these companies, such as Ionics and OHM, should help their values increase for the next three to five years.