(FORTUNE Magazine) – For over a decade, smokestack America has been taking a licking. First came the environmental quagmire, then the energy crunch and the import invasion. Now the fortunes of basic industry are looking a lot brighter, and some of Wall Street's savviest sages talk of a renaissance. ''The basic engine of this reversal,'' says Charles Clough, chief investment strategist for Merrill Lynch, ''is the reversal in the dollar.'' Against the German mark and the Japanese yen, the dollar has lost about 50% of its value in the past three years, and the erosion may have a ways to go (see The Economy). The mini-dollar is making American products and technology less expensive in world markets. ''We will have an export-oriented boom in industrial production,'' predicts John Connolly, an investment strategist for Dean Witter Reynolds. The U.S., in Clough's words, is also becoming ''the productive site of preference.'' Clough points out, for instance, that a year ago Honda of Japan was planning to import half the parts for autos assembled in the U.S. Now Honda will bring in only one-fourth of them. Most stocks of smokestack companies took an extra-heavy pounding in the October crash. All the better for bargain hunters, says Barton Biggs, worldwide investment strategist at Morgan Stanley. The stocks performed poorly, he believes, because investors mistakenly fear a recession with especially hard times for cyclical companies. Any economic slowdown, Biggs predicts, will be brief. By mid-1988, he says, growth will return and smokestack companies, which have drastically lowered their breakeven points, will enjoy fat earnings gains in 1988 and 1989. If basic industry is in for a boom, Caterpillar, the $7.7-billion-a-year manufacturer of earth-moving equipment, should be a big winner. Japan's Komatsu, archrival of the Peoria, Illinois, company, has raised prices six times in the past two years because of the strengthening of the yen. Komatsu used to underprice Caterpillar by about 25%, but that figure is now more like 10% to 15%, according to Alex Blanton, a security analyst at Merrill Lynch. Because its equipment is widely regarded as the most durable and efficient in the industry, Caterpillar has won back market share at this price differential. The company exports 36% of its output from U.S. factories. Customers, moreover, are beginning to replace aging equipment en masse. Sales in the third quarter were up 23% over the third quarter of 1986. Blanton expects earnings to grow from $1.80 per share in 1986, after a nonrecurring charge of $1.03 for plant closings, to at least $3.75 this year and $5 to $6 next year. Parker Hannifin of Cleveland manufactures myriad machine parts that are the sine qua non of industrial revival, among them valves, gaskets, cylinders, pumps, seals, filters, and hoses. Says Andrew Silver of Donaldson Lufkin & Jenrette: ''The company will be a huge beneficiary of the relocation of Japanese automobile manufacturing to the U.S.'' Parker's sales have jumped 25% since July, and Silver sees earnings per share climbing from $1.88 in the fiscal year that ended last June to $2.85 this fiscal year. Cooper Industries, a maker of compressors, pneumatic tools, and electrical equipment, doesn't face much foreign competition in this country, and exports account for only 7% of its $3.4 billion in sales. But, according to Blanton of Merrill Lynch, the Houston company should get plenty of orders from industrial customers who do benefit from the lower dollar. Cooper has closed a lot of inefficient plants and cut costs in recent years, taking the pain over a few years as a charge against earnings rather than setting up a reserve. Blanton says that's one reason why per share earnings will now improve sharply from $3.03 last year to an estimated $4.35 next year.

''Steel has made dramatic strides back from oblivion,'' says J. Clarence Morrison, an analyst at Dean Witter Reynolds. Thanks to the cheap dollar and years of shutting old mills, Morrison believes, U.S. steelmakers have the lowest costs among mature industrial countries: $400 to $450 per ton, vs. $450 to $500 in Japan and West Germany. Inland Steel Industries, perhaps the most efficient of the integrated U.S. producers with its single plant near Chicago, should prosper. Morrison expects earnings to rise from 40 cents a share in 1986 to $2.95 this year and $4.50 in 1988. Connolly of Dean Witter suggests Bethlehem Steel for the daring. In a public offering the week before the crash, Bethlehem raised $196 million for modernization and to retire debt. The price of the stock then fell 30% before rebounding recently to $12, leaving a lot of unhappy new shareholders. Selling at six times Morrison's estimate of 1988 earnings, the stock may tempt some buyers. Among electrical equipment companies, Connolly favors Westinghouse Electric, ) whose product mix is more oriented to industry than General Electric's. In addition to electric motors, the Pittsburgh company pours out a plethora of products from circuit breakers to sophisticated factory control systems. One analyst thinks that earnings per share will scoot from $3.56 in 1986 to $5.05 this year and to $5.60 in 1988. Investors, he says, should find that electrifying.

CHART: SIX THAT ARE REVVING UP

REVENUES NET STOCK PRICE RECENT latest four INCOME RANGE PRICE COMPANY quarters in millions last 12 months P/E multiple*

in billions

Westinghouse Electric $10.4 $718.8 $40.00-$75.00 $45.75 9.2

Caterpillar $7.7 $32.0 $37.125-$74.75 $55.25 172.7

Bethlehem Steel $4.4 $137.0 $4.625-$19.75 $12.00 5.5

Inland Steel Industries $3.5 $115.7 $17.00-$35.25 $22.00 14.0

Cooper Industries $3.4 $165.0 $37.75-$74.50 $47.00 14.2

Parker Hannifin $1.9 $88.1 $24.00-$49.00 $28.00 14.6

* Multiple based on earnings for the latest four quarters, exclusive of nonrecurring items.

CREDIT:NO CREDIT CAPTION:Wall Streeters are keen right now on these suppliers of industrial goods. The worker is adjusting a braiding machine at Parker Hannifin's hose plant in Ravenna, Ohio. DESCRIPTION: See above.

CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: STATE OF THE MARKETS DESCRIPTION: Dow Jones Industrial Average, price-earnings multiple of Standard & Poor's 500-stock index, interest rates on Treasuries, municipals and money- market funds; price of gold, 1982-11/12/1987.