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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.

More diversified companies are trying to generate shareholder value by concentrating on basic goods and services, instead of spinoffs and other financial activities. Notable examples include AlliedSignal, Alco Standard and United Technologies. Investors should choose companies accordingly. Historically, the industry has done well during periods of economic uncertainty.

Diversified companies as a group are attractive to those investors who remain skeptical of the market, but in 1994 the market is improving and investors are more confident of the market direction. However, there are still opportunities in this sector. Some firms have found strategies to boost profits despite lackluster earnings by spinoffs, bust-ups, buybacks and other tactics. Investors look to clever CEOs to lead the way.

Diversified companies are not expected to post strong gains over the near term, although improvements in operations could boost stock prices during the 1997-1999 period. These companies have shifted their focus from acquiring companies to managing operations. These companies are seeking improvements in weak operations and divesting units that do not match their core businesses. Investments in this industry are best for the value-conscious investor.

Financial management of conglomerate companies has changed drastically from the 1980s to the 1990s. In the 1980s, shareholder wealth seemed to be generated by the chief financial officer in spinoffs, share buybacks and recapitalizations. However, in the 1990s, companies that restructure are usually finding ways to enhance their operations. Companies are divesting subsidiaries that are not in their main line of business. The diversified companies that are more focused on earnings growth are a better investment than those that retain the financial management strategies of the 1980s.

Diversified company stocks are reaching a respectability not seen since the 1960s. Improvements since the mid-1980s have put the medium price-earnings multiple for industry stocks on par with other industry stocks. However, since these stocks show the best results during economically uncertain times, the outlook is not clear in the midst of economic upturn. Potential investors should carefully examine individual stock timeliness rankings and earnings potential.

Conglomerate company stocks were once thought of as highly desirable during times of economic weakness but may not fulfill investors' expectations. In the 1980s, many diversified companies weakened and restructured. The restructuring has caused many companies to improve since 1991, yet their growth may be slower than cyclical stocks.

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