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Friday, October 04, 2002

By Len Boselovic, Post-Gazette Staff Writer

If you're bottom fishing in the market -- and where else in the market is there to fish these days? -- Prudential Securities market analyst Larry Wachtel says you can take your time.

"I think there will be a tedious bottoming process," said the 38-year market veteran, in town yesterday to meet with Prudential's staff and hold the hands of the firm's clients.

Wachtel thinks the market has seen its bleakest days, barring any problems in Iraq. "That's the 800-pound gorilla," he said.

Wachtel said in previous bear markets, the Standard & Poor's 500 sold for 13 to 14 times earnings at the bottom of the market. Today, the ratio is about 15. Because interest rates are at historic lows and inflation is virtually nonexistent, stocks theoretically should be more attractive to investors because certificates of deposit and other safe investments return so little, Wachtel said.

"We can make a case that 17, 18 times earnings would be a reasonable valuation," he said.

Investor psychology has a lot to do with why the market isn't priced that way. People just aren't as interested in the market as they used to be.

"They've heard the pitch before, and they're a little disillusioned," he said.

Among the areas that Wachtel finds interesting are tobacco stocks, real estate investment trusts and other dividend producing investments. Housing and home improvements shares also should continue to do well, he said. Longer term, a market turnaround will benefit shares of brokerage firms and mutual fund operators. Two of his favorites in that area are Prudential competitors Merrill Lynch and Morgan Stanley.

"This is the time to step up to the plate on those stocks," Wachtel said.