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Demand for petroleum and natural gas is increasing in 1996, and oil and gas prices are rising or remaining firm. Production is also increasing in 1996, and several producers are planning higher output in 1997, as well. The oil and gas industry is timely for 1996, but earnings may swing from financial leverage and overseas political uncertainty. These stocks have prospects to outperform the market and are recommended for risk-tolerant investors.

The overcapacity created in the 1980's in the hotel industry has decreased, as there has been little new hotel construction in the 1990's. However, the limited service sector has seen more building activity. The stigmas against gambling have eroded, and casinos in Las Vegas, NV, and Atlantic City, NJ, are having a resurgence, though new construction may cause a glut. Investors should consider only strongly-focused stocks in this volatile industry.

Consolidation in the electricity industry, in response to coming industry deregulation, began in Jul 1996 with the merger Enron Corp and Portland General. As the industry moves closer to the free market consolidation is likely to increasingly develop. However, privatization is slower for the international coal industry. Several stocks have long-term appreciation, but CalEnergy Co and AES Corp are the two highest ranked for market performance.

The construction and mining machinery industries are expected to do well over the next 12 months, from 3rd qtr 1996 to 3rd qtr 1997, as the US economy expands and international markets recover. These stocks have done increasingly well throughout 1996. An investor should be selective because major selloffs may take place at any time.

Weak prices and strong volume continue in the integrated steel industry during 1996. Plant outages and market share competition have also had an effect on the industry. Capacity is expected to expand in 1997 to meet global demands. Long term prospects in 1999-2001 look better than the short term prospects.

Production of paper and paperboard fell 4% and 5% respectively in May 1996, due to high customer inventories and eroding prices in the spring of 1996. Even though markets for some individual products remain chaotic, prices in other market sectors may stabilize in the second half of 1996. Lumber prices were also volatile in the 2nd qtr of 1996, ending with an 11% gain. Most investors should not seek stocks in this industry in 1996.

Profit margins of packaging firms were pressured in 1995 from competition, rising costs, and other factors, resulting in some industry consolidation. A major trend toward international expansion is occuring in 1996 via joint ventures, acquisitions and privatization. Also, materials costs are being reduced. Increased demand and lower costs are improving margins for some of these stocks, but investors must be selective.

Earnings for the specialty chemical industry have been low for the last two to three years, but several sectors have good prospects for 1996 and 1997, and through 1999-2001 as well. This industry produces a variety of basic chemicals for cyclical and non-cyclical industries and usually lags economic cycles. Several specialty chemical companies have mature markets and product lines, and investors must select stocks on an individual basis.

The supply of natural gas for Jun 1996 is below its seasonal level, and is at 1.1 trillion cubic feet according to the American Gas Assn. The natural gas spot price is being kept high with strong demand and depleted reserves, and for the next three to five years consumption is expected to rise from 2% to 3% per year. Despite volatile gas prices several gas industry stocks are above average in timeliness and have good earnings prospects for 1996.

Petroleum industry earnings and stock prices have risen with increased oil prices, smaller petroleum inventories, and a colder winter in 1996. Demand for petroleum products is increasing and may overtake supply by the end of the 1990s. Industry earnings are expected to be good through 1996 and 1997, even though oil prices may be volatile for the same period. These stocks have appeal for conservative investors through 1999-2001.

Stranded asset recovery and transmission access are electric utility deregulation issues that are affecting the coal and alternate energy industries. The larger independent power providers are focusing on non-US markets, and since non-competitive nuclear power-plants are decommissioned, the coal industry is expected to gain a larger domestic market share. Individual stocks must be evaluated prior to investment.

Limited oil exports from Iraq will help ease oil prices, and legislation allowing Alaskan oil exports has been signed by President Bill Clinton. Gulf of Mexico lease sales have also increased. The average reserve replacement ratios and finding costs for a five-year period have been calculated and the data show positive results for many companies. The petroleum industry is timely for 1996 and many stocks have capital gains potential.

Conglomerate corporation securities are a traditionally high attraction to many investors and while many have proved to be profitable, care must be taken in selecting the right companies in which to invest. Investors who anticipate purchasing conglomerate stocks at relatively low prices and cashing in when the corporations restructure or spin off sections, must be aware as to the profitability of all of a conglomerates operations before investing.

The steel industry appears to have established itself into a stable economic condition with consistent, although modest, economic growth continuing in both the short-term and long-term periods. Unlike the 1980s, the steel industry has raised production and cut costs to become profitable, even though prices have remained low. Sophisticated investors can obtain benefits from short-term investments but the less experienced should use steel industry securities for long-term investments.

Stabilizing raw materials prices should benefit the packaging and container industry. Share prices have increased but early 1996 is not a good time to invest in these stocks except for long-term values. Raw material pricing changes should increase the earnings within the industry and foreign markets may also beckon with potential sales.

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.

The severe winter of 1995-1996 created high demand for natural gas from residential and industrial users, especially in the Northeast, and record low levels of gas storage. Increased gas prices and new drilling techniques are making exploration and production more economically feasible, and the industry is also becoming more competitive through deregulation. There are investment-grade stocks here, although the industry is not timely.

Prices for oil climbed higher in Mar 1996 to $25-a-bbl, but may recede to $18-$18.50-a-bbl with adequate supply, over-production from OPEC countries, and larger amounts of crude oil from Latin America. There has been pressure on profit margins for US and European refining companies in recent years due to capacity, but this is improving. These stocks provide investors with good dividends, safety, and a good return over the next three to five years.

Independent power producers will likely enter the electric utility market after deregulation by California and other states. Since consolidation is probable, utilities will be able to demand lower coal prices and inhibit competition for smaller companies. Markets are expanding in China, India, and other Asian countries for independent producers, as well. Only AES Corp is expected to outperform the market, but other stocks have potential.

Higher natural gas prices, along with steady prices for crude oil, have increased earnings and margins for the petroleum industry. Lower supplies and greater seasonal demand will maintain gas prices through 1996. A 10% internal productivity gain and increased reserves are important factors for companies, many of which are highly leveraged with debt. These stocks are not timely for 1996, and investments must be carefully chosen.

Current U.S. economic conditions and uncertainty about the country's immediate economic future, coupled with a prevailing belief that another recession is not likely to occur soon, has increased investor interest in conglomerate corporations. Conglomerate corporations as an investment offer an equal number of advantages, such as low prices, and possible perils, such as cost cutting and asset shuffling. Studies of individual companies can provide better investment guidance than reviewing conglomerate corporations as an entity.

The steel industry may find economic growth becoming somewhat more difficult as the national economy has begun to slow down the dramatic increases recorded in the summer and fall of 1995. However, a further lowering of interest rates and the industry's policy of clearing capital debts indicate that major steel industries will show increased profits in 1996. The steel industry's security prices appear to be a good area for long-term investment but the cyclical nature of the industry's economic results should deter even patient investors.

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.

Margins in the container and packaging industry are under pressure from higher raw materials prices, especially for aluminum and and paper. There is also less demand for consumer food and industrial cans, and this is having an effect on earnings. The industry has matured and consolidation is expected to increase, due to economic necessity. These stocks are not timely for 1996, but several may have earnings potential in the future.

Natural gas is not a timely industry for the 4th qtr of 1995, but severe winter conditions in 1995-1996 could lead to a lower supply of gas and higher prices. Natural gas prices are $3 per thousand cubic feet in late 1995 and are not likely to fall. Higher gas prices will also benefit the exploration and production sector. Although this industry is not timely, several stocks have investment potential for 1996.

Oil prices rose in 1995 with Asian-Pacific development, European economic recovery, and US economic expansion, although there is overcapacity. There is adequate supply for increased demand, especially from non-OPEC producers, but static production quotas have been voted by OPEC for its members. Cost cutting, automation, and refining are key earnings factors. Several of these stocks have three-to-five-year appeal, although the industry is now defensive.