In Search of a New Game

Natomas Co. would not seem to be the ideal speculative stock. About 80% of its revenues come from the lackluster shipping industry. With its 37% stake in oil concessions in the ocean off the Indonesian island of Java, and a 68% stake in a concession off Sumatra, the company may yet become an important oil producer. But, as officials of San Francisco-based Natomas concede, no one knows how much oil will be found in either field.

Still, Natomas for months has been one of the most wildly gyrating stocks on the New York Stock Exchange. From an early 1969 low of 34 1/8, it climbed to a June high of 130 1/2. In July it fell back into the 70s, then swiftly rebounded. An announcement by company officials that they are "formulating plans" to begin exploratory drilling off Sumatra by year's end sent the stock up 101 points in one day early last week, to 106 3/8. It closed Friday at 101 3/8 -or about 85 times Natomas' 1968 earnings of $1.20 a share.

Hungry Speculators. The swings tell less about Natomas than about the desperation of speculators and other investors to find a new outlet for their money. "People are hungering for something to get action out of," says Robert T. Allen, vice president of Shearson, Hammill & Co., the big Manhattan brokerage house. Especially hungry are the managers of "performance" mutual funds and hedge funds, both of which have sold themselves to investors on the promise that they could select stocks that would surge ahead no matter what the rest of the market did. The stocks that most of them selected--computer, conglomerate, oceanography and nursing-home issues--have fallen hard in this summer's bear market.

Some funds have been battered so badly that Wall Street elders expect management upheavals soon. Nonetheless, the funds, as well as many individual investors, remain deeply committed to the performance game. In their search for new favorites with which to play, they have seized on Natomas as an available game and made a virtue of the uncertainty about the company's oil prospects. To speculators, says Lucien Hooper of W. E. Hutton & Co., Natomas' merit is precisely that "no one can tell what it is worth."

The Next Test. The likelihood that speculators will soon find another way to outgain stock-market averages is not great. Last week the stock market slowly extended a technical rally from its July 29th low of 801.96 on the Dow-Jones industrial average. The average rose 16.37 to close at 837.25. Brokers almost unanimously expect that the rally will give way soon to a new drop that will "test" the low. Opinion is divided about evenly on whether or not the market will pass that test.

Few brokers are strongly bullish or strongly bearish. Those who expect the Dow-Jones average to fall below 800 predict that any new decline will be less violent than the 167-point May-July plunge. Those who expect the July low to stand as the bottom of the 1969 market predict that stock prices will move sideways for a long time until there are solid indications that inflation is being brought under control. Such prospects may be faintly reassuring to the average investor, but they do not promise much chance for speculators to recoup their mid-1969 losses quickly.

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