On the second floor of the Sears store in Montgomery Mall, just beyond the water purifiers and across from the fishing rod display, is the Dean Witter Reynolds office. The broker on duty is Kevin L. Sherlock.

On his left is the Allstate insurance counter, on his right the Coldwell Banker real estate office. The three operations, all owned by Sears Roebuck, are clustered under a sign that reads: "Sears Financial Network."

The idea of selling stocks and bonds along with refigerators, vaccuum cleaners and sleeping bags, seems to smack of a revolution in the securities business. But it isn't just the merchandising methods that are new. What Sherlock is selling is also new.

The fact is that relatively few of Sherlock's transactions in Sears involve stocks or bonds. Most of his sales involve the scores of new investment products that brokerage firms have invented in the last few years: unit trusts, mutual funds, money market funds and certificates of deposit.

Sherlock is part of a five-broker team that serves the Montgomery Mall store, on a schedule that puts each broker in the store one day a week and one weekend a month. On those days, the broker is on duty the same hours the store is open: 10 a.m. to 9 p.m. Monday-Saturday, 12 noon to 5 p.m. Sundays. For most stock brokers, that is a distinctly non-traditional schedule.

Life in the Sears stores, with its walkup trade, can be very quiet or very busy, reports Sherlock, who moved to the securities business after working as an accountant. It also can be frustrating. "Sometimes they all show up at the same time," he said. "The other day, two people came by a minute apart and one walked away because I was busy."

When the brokers are not in Sears, they work out of Dean Witter's "Washington Metro Center" near Tysons Corner. From there, 38 mostly-rookie brokers fan out to Sears stores in seven locations: Fair Oaks Mall Fairfax; Lakeforest Mall, Gaithersburg; White Oak Shopping Center, Silver Spring; Landover Mall, Landover; Landmark Shopping Center, Alexandria; Wilson Boulevard, Arlington and Montgomery Mall, Bethesda.

Presiding over this excursion into mass marketing is Greg Ellison, an enthusiastic 32-year-old broker from Dean Witter's Richmond office who came to the securities business via a master's degree in English literature, a stint teaching Shakespeare and a year driving an 18-wheeler for a firm that sold boats and campers. When he went to work for Dean Witter in 1977, he said, his five-year goal was to become the top producer in the Richmond office. By 1983, right on schedule, he was grossing more than $250,000 a year and switched to management.

After almost two years in business, Ellison's brokers have generated about 6,000 accounts, and some of the original brokers have moved on to regular Dean Witter offices. An average broker who graduates from the Sears operation after 18 to 20 months, Ellison said, will have developed 300 to 400 accounts and will be producing $12,000 a month in gross commissions. At 35 percent commission, the broker would earn $4,200 a month or $50,400 a year.

Nationally, Dean Witter is now staffing 300 Sears stores and the firm has 7,000 brokers in all of its operations. Launching Dean Witter's Sears operation clearly has been expensive. How expensive neither party will say. And the operation is still losing money -- although again neither Dean Witter nor Sears will say how much. Dean Witter officials do claim, however, that they are approaching the break-even point, and there are other signs that Sears remains committed to its financial network operation.

One factor that may help Sears is the vast expansion of the investor market. The advent of Individual Retirement Accounts (IRAs), Ellison notes, "forced everybody to become an investor" -- or at least to learn something about investing. The hope is that once people develop an interest in investing, it will become a habit -- and a profitable one for Sears. The announcement that United Virginia Bankshares of Richmond will buy about 58 percent of Washington's NS&T Bank at $86.98 a share has helped boost the stock prices of several other area banks. The UVB-NS&T deal, reflecting a newly-favorable climate for interstate mergers, has focused investor interest on several area banks that might play a role in future mergers.

During the two weeks since the UVB-NS&T agreement, Riggs National Bank moved up from $38 to $50, rising $4 Thursday and $4 Friday on rumors of merger. American Security Bank rose from $22.25 to $25.25. In Maryland, Suburban Bank went up from $47 to $51.75; Mercantile from $46.50 to $49.75 and Union Trust Bank from $56.13 to $61.50.

NS&T stock, which is thinly traded, was selling at $49 before the merger deal. It immediately jumped to a bid-asked range of $70-$75 and was quoted Friday at $68-$72. Why didn't the price move up to the $86.98 being paid by United Virginia Bank? The explanation, experts say, is two-fold. First, the merger has to win approval by the Federal Reserve Board and is awaiting passage of a reciprocal interstate banking law in the District, which will take time. Second, given the time-value of money, few investors would pay $86.98 a share for the stock, knowing he would have to wait perhaps six months before he could get his money. Prudential Bache analyst Barry M. Abramson, a specialist in utility stocks, has boosted Pepco's long-term rating from "accumulate" to "aggressive purchase." Abramson also said that after talking with company officials, he had raised his earnings estimate for 1985 to $3.50 a share, up 15 cents, and boosted the 1986 estimate to $3.70, up 20 cents. Pepco earned $3.23 for 1984. With a dividend of $2.16, Pepco stock yields 8.5 percent. It closed Friday at $29.50, a 52-week high.

Pepco, Abramson said, appeared likely to enjoy improved growth rates because of the strength of the Washington area economy. It also should benefit, he said, from significantly higher earnings contributions from non-regulated, leveraged investment income through Potomac Capital Investment Corp., a wholly-owned subsidiary. The company's portfolio of leveraged investments, he said, includes preferred stocks, a 747 aircraft and partial ownership of a satellite. The utility, he added, offers a combination of low financial risk, strong financial quality, low operating risk (PEPCO is completely non-nuclear), good cash flow and innovative management.

"With long-term dividend growth of 10 percent a year and a current yield of 8.5 percent," he concluded, "we believe that annual total returns of about 18 to 20 percent are achievable." The Lane Co., a major furniture manufacturer in Altavista, Va., can look forward to earnings that are higher than expected in the next two years, according to Stanley Lanzet of Drexel Burnham Lambert. Lanzet recently boosted his 1985 earnings forecast by 35 percent, up from $3.70 to $5 a share. He also raised his 1986 estimate from $4 to $5.25 a share.

Lanzet based his forecast on several factors. Lane's fourth-quarter, he said, saw earnings move up 24 percent, or $1.38 a share, exceeding his estimate of $1.20. Backlogs and incoming order rates remain strong while costs are stable, and the outlook for the furniture industry is good.

Setting new highs for eight consecutive weeks during January and February, Lane stock moved up from $39 to over $50 a share. The stock closed Friday at $46.75.