(FORTUNE Magazine) – What's with this market? Defying a stock implosion in Tokyo and creeping interest rates at home, it seems to reach effortlessly skyward. But a closer look reveals some straining. While the Dow has climbed a respectable 5% so far this year, the broader indexes are all down a shade. Compared with earnings and cash flows, prices look high. Investment bankers are flooding the pipelines with initial public offerings, and individual investors are rushing into mutual funds, both signs of a market top. Are we teetering toward a stock market wipeout? Probably not, but don't be surprised if stocks only saw-tooth their way through spring and summer. The gap between stock prices and stock values looks too wide for the market to climb significantly. Corporate earnings, abysmal last year, must grow to shrink stretched price/earnings multiples, or long- term interest rates, which recently topped 8% for 30-year Treasury bonds, must drop again before stocks can sustain solid growth. It looks as though the standout stock market performance of President Bush's first three years may subside to a more normal level (see table). Do you want to invest in a market like this? Probably not heavily. But if you're already in stocks and want to adjust your portfolio, listen to the big debate on Wall Street over the merits of value stocks, usually cheaper industrial corporations, vs. less cyclical growth companies. Lately the smokestackers seem to be winning. One reason the Dow is ahead of other indexes is that it is more heavily industrial, with such stocks as International Paper, up 8%, and Alcoa, up 16%. Says Goldman Sachs investment strategist Steven Einhorn: ''These cyclical companies will have the biggest earnings gains over the next several quarters, so it stands to reason they will continue to do well.'' Many market strategists suggest that last quarter was a turning point for smokestack stocks. Growth stocks and industrial stocks tend to exchange the lead in performance every few years (see chart), and after several years of growth stocks' performing better, it may be time for industrials to lead since they do better when the economy picks up. Goldman's Einhorn wisely suggests a blended approach, mixing a helping of healthy, attractively priced industrial stocks with a sizable dollop of growth stocks. ''We are certainly recommending a more eclectic portfolio than we have in the past several years,'' he says. Einhorn recently added a few commodity chemical makers, such as Du Pont and Arco Chemical, to his buy list, as well as paper and forest product companies International Paper, Stone Container, and Georgia-Pacific. Of these companies he says, ''Cost restructuring has generated surprisingly good earnings on very limited sales volume.''

Geoffrey Raymond, chief investment officer of Timco, the $4.5 billion money management arm of Travelers, is one of many managers trying to balance growth and value stocks. ''Right now the marble is in the middle of the plate, but it is rolling toward the cyclical stocks,'' he says. One he likes is Williams Cos., a gas pipeline company with a telecommunications subsidiary. The stock sells for ten times Raymond's 1993 earnings estimate. Earnings are growing 25% annually. And what about that dollop of growth stocks? Plenty are available (see Portfolio Talk). Michael DiCarlo, who runs the John Hancock Special Equities Fund and co-manages the firm's global fund, likes a couple of small leisure stocks. SLM International makes toys and CCM hockey gear. It sells for $20, and DiCarlo thinks it will earn $1.20 a share this year. He also recommends Charter Golf, maker of Ashworth golf shirts. Masters champion Fred Couples is the product spokesman, and the shirts, sold only in pro shops, are jumping off the shelves. The stock goes for $8, or 23 times DiCarlo's per share earnings estimate for this year. Raymond of Timco has been looking for growth in technology stocks, including software colossus Microsoft, which fell recently on a weaker than expected growth forecast and trades near $120 a share. Raymond figures earnings should increase about 28% per year and says, ''I think the stock will sell for $150 to $160 in the next 12 months.'' In the banking sector Raymond favors Synovus Financial, which owns banks in Sunbelt states. Its prize possession is Total System Services, a bank card data processor that handles AT&T's Universal Card. That business is booming. -- BONDS. What to do. Yields on CDs and Treasury bills are so miserly that you have to wonder if they're worth the bother, but if you want safety, where else can you look? In a few places, as it turns out, that offer savvy savers decent yields with security. Start at the Treasury market -- but instead of buying a bill, note, or bond, investigate Treasury Strips (a tortured acronym meaning separate trading of registered interest and principal of securities). Essentially zero-coupon bonds, Strips are more volatile than their interest-paying counterparts, but their yields to maturity are higher. For individuals who buy and hold bonds until they expire, that extra yield is a gift. The cheapest Strips now, says Peter Hegel, who oversees $15 billion in fixed-income funds for Van Kampen Merritt, are those maturing in ten to 17 years. A ten-year Strip currently yields 8% to maturity, vs. 7.60% for a straight bond. In reality the difference may be larger because the straight bond's yield figure assumes that interest can be reinvested in the same bonds, which sell in $1,000 increments. Most individuals won't get interest payments large enough to allow that. Reinvest in a money fund yielding 4%, and the straight bond's yield to maturity falls to 6.61%. For a three-way tax break -- federal, state, and local -- head for municipal bonds. Insured bonds, a smart way to bypass state and local budget difficulties, pay less than uninsured issues, but competition among insurers has reduced the yield give-up for these triple-A bonds to only about 0.15 percentage point. A Hegel recommendation: the noncallable Modesto, California, Irrigation District bonds, paying 6.5% and due 2011, currently trading at par. Another triple-A, triple tax-exempt alternative favored by David Baldt, head of fixed-income investments at Morgan Grenfell, is short- to intermediate-term munis backed by federal housing authorities. Because federal agencies like Ginnie Mae guarantee principal and interest, says Baldt, ''these bonds are Treasury notes in sheep's clothing.'' Consider the Ginnie Mae-backed Allegheny County, Pennsylvania, Residential Finance Authority 6.5% bonds. -- REAL ESTATE. Like the nerdy kid from high school who roars back to the class reunion in a Ferrari, long-neglected real estate investment trusts (REITs) are getting the last laugh. It's not hard to see why. While private developers loaded up on speculative properties in the Eighties, conservative REITs, disciplined by the demands of the public market, used leverage judiciously and bought properties that actually made economic sense. When the giants crumbled, taking banks, insurance companies, and other financiers down with them, boring old REITs were the only ones left to sift through the rubble. And what a wonderful wasteland it is. Says Martin Cohen of the investment advisory firm Cohen & Steers in New York City: ''It's a buyer's market of unprecedented proportion.'' Bruce Garrison of Kidder Peabody believes apartment buildings have the best fundamentals. New construction has virtually stopped, and owners are demolishing some older buildings, while the uptick in the economy will increase demand, Garrison says. He especially likes Property Trust of America, which buys buildings in the Southwest and whose apartments boast 98% occupancy. The shares yield 7%. Garrison expects shareholders who hold the stock for three years to earn 13% annually in dividends and appreciation. Health care REITs, which returned a remarkable 63% to shareholders last year, will continue to perform admirably, says Mike Kirby of Green Street Advisors, though the numbers will come down to earth. He likes Nationwide Health Properties and Health Care Property Investors. Expect a total return of close to 15% annually for the next few years, he says. Michael Oliver, president of PRA Securities Advisors, thinks muscular REITs that buy community shopping centers will also excel. As frugality becomes chic, centers with ''category killers'' -- successful specialty retailers such as Circuit City Stores -- will continue to benefit at the expense of department-store-dependent regional malls. In this category, Oliver says that Weingarten Realty Investors, Federal Realty, and Kimco Realty are the powerhouses. -- COMMODITIES. Will the economy's rebound restore gold's lost luster? Don't bet on it. Experts like Martin Murenbeeld say gold's decline to a recent six- year low of $338 an ounce doesn't signal a bottom. Murenbeeld, an economist at the Victoria, British Columbia, consulting firm that bears his name, notes that gold has a history of poor performance early in recoveries. Says he: ''We think gold will average $343 this year, although in a worst case it could fall below $300.'' Industrial demand for several metals is in a slump. James Kneafsey, president of the institutional investment firm Cambridge Financial Management, believes many metal prices, already low, could fall another 10% to 15% this year. That forecast includes silver and platinum. Silver, which peaked in January at $4.41 an ounce, is bobbing around $4 in the face of oversupply. Platinum, a key component of catalytic converters, sold recently at $344 an ounce. Soft car sales and better converter technology that requires less platinum have kept prices weak. The best way for a commodities investor to play the economic recovery is to buy stocks of efficient metals and mining companies. The key is to choose companies that are technologically proficient, with low production costs and plenty of reserves. Analyst John Tumazos of Donaldson Lufkin & Jenrette thinks American Barrick Resources and Newmont Mining fit the bill. By preselling its gold production, American Barrick has locked in a sweet price of $425 per ounce for the next three years. At $23 a share the stock is trading at 19 times Tumazos's 1992 earnings forecast. Newmont Mining is a large, low-cost producer that can make money when some others can't. Its stock, recently $37 a share, trades at 25 times estimated 1992 earnings. At County NatWest, analyst Ron Shorr favors multifaceted Freeport-McMoRan and Inco, a leading nickel producer. Shorr thinks both companies can increase earnings per share to $1.75 in 1993. Freeport recently sold for $41 a share. Inco is more volatile, but Shorr considers the stock cheap at $29

BOX: WHAT THE HECK DO I DO NOW?

STOCKS -- Don't expect sustained growth until profits improve or interest rates fall. Bet on cyclicals.

BONDS -- Miserly rates make tax-exempt issues like insured or Ginnie Mae-backed munis attractive.

REAL ESTATE --After a super 1991, REITs look respectable. Those owning apartments offer hefty yields.

COMMODITIES --Metal prices, already low, will be weak. Consider stocks of large, efficient mining companies.

CHART: NOT AVAILABLE CREDIT: FORTUNE CHART/SOURCES: RUSSELL 1000 INDEX; PRUDENTIAL DIVERSIFIED INVESTMENT STRATEGIES VALUE ON THE REBOUND Value stocks, usually industrial companies, tend to outperform growth stocks like drugs or beverages when the economy is picking up.

CHART: NOT AVAILABLE CREDIT: FORTUNE CHART/SOURCE: HOULIHAN LOKEY HOWARD & ZUKIN INVESTMENT MANAGEMENT CAPTION: MIXED REVIEWS FOR THE CHIEFS The market hasn't played favorites with the political parties, though for now George Bush leads the pack.

CHART: NOT AVAILABLE CREDIT: FORTUNE CHART/SOURCE: ALEX. BROWN & SONS CAPTION: WHERE RETURNS ARE -- AND AREN'T -- BUILDING Real estate investment trusts are among the soundest operators on America's ravaged real estate scene. Apartment REITs look strong because demand is brisk while supply scarcely grows.