July 2000
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Contents Back Issues March 2000 April 2000 May 2000 June 2000 Investing Buy & Sell: The furniture industry Stocks for traders Model Portfolio Bought Model Portfolio Update Model Portfolio Chart |
There are several factors that will determine whether the price of a stock will rise or fall. Below are several of these factors, and depending on the particular stock, the economy, the factor that is listed last could affect the price of particular stock more than a factor which is listed first. First of all, earnings affect the price of a stock. As earnings grow, the price of a stock will typically(continued in: Investing). As the sales of single-family homes continued to ascend, the sales of furniture proceeded to grow. In the past months, due to the Fed tightening, the 30-year fixed mortgage rate has risen above 8% and the sales of new housing units started to fall. In such an environment the sales of furniture could fall, but as long as the Fed manages to achieve a soft landing, the sales could resume their upward trend (continued in: Buy & Sell ). Speculators who like to trade frequently could buy stocks listed in this section. Investors should be aware that short-term trading involves much greater risk, and preferably no more than 10% of the portfolio may be invested in these stocks. Many of the stocks in the technology sector should be bought at recent low levels. Speculators could achieve short-term gains, up to 100% on some of these stocks. Unisys Corporation (NYSE symbol: UIS) is a major provider of customer services and information services. The Company makes network servers and software. After going through three consecutive years of losses, the Company finally turned profitable in fiscal 1998. For 1998, the Company reported earnings of $1.06 a share, versus a loss of $4.70 a share (continued in: Stocks for traders). Applied Materials, Inc. (NASDAQ symbol: AMAT) is a major supplier of wafer processing equipment that is used to produce semiconductors. The Company produces systems that use physical vapor deposition technology, chemical vapor deposition and oxide etching. (continued in: Model Portfolio). |
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Investing There are several factors that will determine whether the price of a stock will rise or fall. Below are several of these factors, and depending on the particular stock, the economy, the factor that is listed last could affect the price of particular stock more than a factor which is listed first. First of all, earnings affect the price of a stock. As earnings grow, the price of a stock will typically reach higher level. If the opposite was to happen and earnings fall, the price of the stock will drop. Furthermore, earnings could affect the P/E ratio-price to earnings ratio of the stock. For example, if a stock of XYZ Company was trading at $20 per share and earnings for the previous year were $1 a share, the P/E ratio was 20. If the earnings were to improve and reach $1.25 a share the following year and the P/E ratio remained stable, the stock could rise to $25 per share. On the other hand, if the earnings of $1.25 a share were below analyst’s expectations, the stock could fall to $12 1/2 and at that level would be trading at 10 times earnings. When a stock is trading at 24 times earnings, it indicates a high level of expectations by investors who expect the earnings to grow. On the other hand, when the price of a stock falls to a P/E of 12, it indicates that expectations are low. Typically, stocks should be bought when the P/E ratios are low, and sold when P/E ratios are high. Second of all, book value, or shareholder equity, plays important part in the price of a stock. Depending on a stock, it could be trading at 2 to 4 times book value. When a stock starts trading below 1.5 times its book value, it presents a buying opportunity for value investor. Third of all, past performance of a stock provides investors with an insight into the pace of growth of particular stock. If during the previous ten years the revenues of XYZ Corporation have risen 19% annually, earnings have risen 30% annually and the stock has risen seven-fold in value, as long as the management continues on the same course, the stock could provide similar return over the next ten years. Investors should be aware that past performance does not guarantee future results, but it does give investors an insight at what pace the stock could appreciate. Fourth of all, the economy is among the major factors that affect the price of a stock. For example, a blue chip stock that was trading at $70 a share and a P/E of 20 could drop to $35 a share and a P/E of 10 at a fast pace, as the expansionary cycle ends and recession begins. As long as the company has a strong balance sheet and the level of debt is not excessive, that is the time to buy the stock. Investors who already own the stock should use this opportunity to acquire more shares. Fifth of all, investors’ outlook on the market is among the major factors that affects stocks. If the outlook is positive (bullish) the stocks will reach higher levels, on the other hand, if the outlook is negative (bearish) stocks could drop in a very short time. During recent years, as stocks rocketed upwards and some started trading at 40 times earnings versus the historical average of 19, some of the analysts stated that this is a different scenario and such high P/E levels are justifiable. Although such P/E level could be justifiable for stocks that generate an annual growth of revenues and earnings above 40%, the remaining stocks might not deserve such valuation level. Furthermore, as media distributes vast amounts of positive news about the market, investors continue to have a positive outlook and stocks reach new highs. On the other hand, as the media starts providing negative news, such as: the Fed could raise interest rates, economy is overheating, or comparing the market to a bubble ready to burst, investors outlook could change almost immediately and the prices of stocks drop literally overnight. Sixth of all, the money flow. When there are more buyers than sellers of a particular stock and more money flows into the stock, the price of the stock will increase. For example, if within two minutes of time there are 30 sellers of XYZ stock, each selling 100 shares, and during the same time there are 100 buyers of XYZ stock, each willing to buy 100 shares, the money flow will increase and the price of the stock will move higher. This could happen for a few minutes, few hours, or the trend could last for several months and as more investors want to buy the stock, the price will continue its strong upward momentum. On the other hand, when there are fewer buyers than sellers, the opposite will happen and the price of the stock will continue to drop. There are more factors that influence stock prices. Depending on investors’ outlook on the market, these factors could propel stocks higher, or bring them to lower levels. Investors should always evaluate all of the factors before buying stocks. Back to Top |
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Buy & Sell The furniture industry As the sales of single-family homes continued to ascend, the sales of furniture proceeded to grow. In the past months, due to the Fed tightening, the 30-year fixed mortgage rate has risen above 8% and the sales of new housing units started to fall. In such an environment the sales of furniture could fall, but as long as the Fed manages to achieve a soft landing, the sales could resume their upward trend next year. Due to the recent interest rate hikes, the stocks in this sector could fall as much as 30 percent during the next four months. Once these stocks reach a bottom, speculators could start accumulating these equities. As long as the Fed manages to achieve a soft landing, some of the stocks in this sector could appreciate as much as 80 percent in less than ten months. Flexsteel Industries, Inc. (NASDAQ symbol: FLXS) manufactures sofas, love seats, rocking chairs and seating for recreational vehicles. The Company markets its products through department stores and furniture dealers. Flexsteel Industries, Inc., has 2,400 employees. For the fiscal year ended June 30, 1999, sales rose to $260.519 million, from $236.125 million for fiscal 1998. Net income rose to $10.317 million, or $1.51 a share, up from $7.6 million, or $1.08 a share for fiscal 1998. During the year, the Company has added 10 new Comfort Seating Showrooms and 21 new Flexsteel Galleries. The unit sales of recreational vehicle seating continue to ascend and the demographics for future growth remain strong. During fiscal 2000, the Company plans to add 7 new Comfort Seating Showrooms and 30 new Flexsteel Galleries. The Company’s Web site, at www.flexsteel.com continues to attract more customers. Although the Company continues to expand, it has not been reflected in the value of the stock. During the past three years this stock has traded in a very narrow range. At the present time we do not foresee significant long-term appreciation potential for this equity. On June 30, 2000, this stock closed at $12 1/4 per share and we maintain our rating of “avoid” (price $12 1/4, annual dividend $0.52, yield 4.2%, and P/E 7). Herman Miller, Inc., (NASDAQ symbol: MLHR) is a leading supplier of office partitions, desks and chairs. The Company has manufacturing facilities in the United States, Mexico and United Kingdom. As of May 29, 1999, there were 84.8 million shares outstanding and the Company had 8,185 employees worldwide. The revenues rose to $1.766 billion for fiscal 1999 that ended in May 29, 1999, from $1.719 billion for fiscal 1998. Net income rose to $141.8 million, or $1.67 a share, from $128.3 million, or $1.39 a share for fiscal 1998. During fiscal 1999, capital expenditures reached an all time high of $103.4 million. The Company invested in information technology to connect its manufacturing, logistics and administrative operations. During fiscal 1999, revenues grew 2.8 percent, below the target level of 15 percent sales growth. The Company plans to achieve the target level of 15 percent in the future. Herman Miller, Inc., has a Web site at www.hermanmiller.com where prospective customers may view the variety of office products made by the Company. Furthermore, the Company has a Web site at www.hermanmiller.com/investors that provides financial history and the performance of its stock. During the past three years, the Company has rewarded the shareholders with two stock splits, and each one was 2-for-1. Investors who bought this stock last year could continue to hold it long-term. On the other hand, investors who bought this stock in February or March 2000, below $20 per share, should sell this stock now to lock in their gains. As the fear of recession sets on the stocks in this sector, this stock could fall at a very fast pace to approximately $18 per share during the next three months. On June 30, this stock closed at $25 7/8 per share (price $25 7/8, annual dividend $0.16, yield 0.6%, and P/E 15). La-Z-Boy Incorporated (NYSE symbol: LZB) is a well-known manufacturer of recliner chairs. The Company also makes bedroom furniture, dining room sets, and sofas. As of April 24, 1999, there were 52.89 million shares outstanding. The Company has manufacturing facilities in United States, Canada and Europe. The Company had another great year. For fiscal 1999 ended April 24, 1999, sales rose to $1.288 billion, from $1.108 billion for fiscal 1998. Net income rose to $66.142 million, or $1.24 a share, from $49.920 million, or $0.93 a share for fiscal 1998. For fiscal 1999, return on equity rose to 16.5%, from 13.4% for fiscal 1998. Furthermore, shareholders equity rose to $414.915 million, from $388.209 million for fiscal 1998. The Company continues to expand through internal growth and through acquisitions. In fiscal 1999, the Company acquired Bauhaus USA, Inc., that designs, manufactures and markets upholstered furniture. Furthermore, on December 28, 1999, the Company completed the acquisition of Alexvale Furniture, Inc., and on January 29, 2000, La-Z-Boy completed the acquisition of LADD Furniture, Inc. LADD Furniture, Inc. will become a wholly owned subsidiary of La-Z-Boy Incorporated. La-Z-Boy, Inc., plans to outpace industry sales growth, increase overall sales at least 10 percent and to achieve a return on capital greater than 20 percent. The revenues reached a record $376.872 million, or $0.41 a share for the third fiscal quarter ended January 22, 2000, up from $318.105 million, or $0.33 a share for the quarter ended January 23, 1999. After reaching a 52-week high of $24 9/16 in July 1999, the stock proceeded to fall and reached $13 ½ per share in January 2000. Afterwards, the stock proceeded to ascend and reached $18 per share in March 2000. On June 30, 2000, this stock closed at $14 per share. In our opinion, long-term, this stock could outperform the stocks in this sector. This stock could revisit its previous high of $24 9/16 during the next two years therefore patient investors could start slowly accumulating it (price $14, annual dividend $0.32, yield 2.3%, and P/E 9). Visit the Company’s Web site at www.lazboy.com Leggett & Platt, Inc., (NYSE symbol: LEG) is the largest producer of bedsprings. The Company also makes mechanisms for reclining furniture, and commercial furnishings such as store fixtures, point-of-purchase displays and material handling systems. Leggett & Platt, Inc., has manufacturing facilities in the United States, Mexico, Brazil, United Kingdom, Italy and Spain. As of December 31, 1999 there were 198.5 million shares outstanding. For the year of 1999, ended December 31, 1999, revenues rose to $3.779 billion, from $3.370 billion for 1998. Net income rose to $290.5 million, or $1.45 a share, from $$248 million, or $1.24 a share for 1998. In 1999, return on average shareholder’s equity was 18.8 percent, down from 19 percent for 1998. Long-term debt as percentage of total capital rose to 30.9 percent in 1999, from 26.9 percent in 1998, due to acquisition of twelve businesses with total annualized sales of $250 million. Most of these acquisitions were small, privately owned companies. Leggett & Platt, Inc., continues to buy back its stock and during 1999, bought over 4 million shares. During 1999, residential and commercial furnishings accounted for 74 percent of annual sales, while aluminum products, industrial materials and specialized products accounted for 26 percent of sales. In October 1999, Leggett & Platt, Inc., was added to the Standard & Poor’s 500 index. This could attract more investors to this large-cap stock. The stock reached a 52-week high of $28 5/16 per share in July of 1999. Afterwards, the stock proceeded to decent and reached a low of $15 ¼ per share in March of 2000. Then, the stock proceeded to build upward momentum and reached $22 per share in April 2000. In our opinion, this stock could once again test its low and reach $15 per share during the next three months. Once the Fed stops raising interest rates, this stock could proceed to build upward momentum and reach approximately $25 per share during the next six months, and reward speculators with a short-term gain of approximately 65 percent. On June 30, the stock closed at $16 1/2 per share (price $16 1/2 per share, annual dividend $0.40, yield 2.4%, and P/E 11). Stanley Furniture Company (NASDAQ symbol: STLY) makes residential furniture targeted at the upper-medium price range of the residential market. The Company makes dining room, bedroom, and home office furniture. Stanley Furniture Company distributes its furniture through furniture stores, department stores and regional furniture chains. The Company has production facilities in Stanleytown and Martinsville, VA, and West End, Robbinsville and Lexington, N.C. As of December 31, 1999, there were 7.119 million shares outstanding. The revenues rose to $264.717 million for 1999, from $247.371 million for 1998. Net income rose to $19.213 million, or $2.47 a share, from $14.483 million, or $1.82 a share for 1998. Stockholders equity rose to $79.573 million from $62.368 million in 1998. During 1998, operating income as a percent of net sales rose to 13%, up from 11.3% in 1998. The Company continues to expand its selection of home office furniture, a market that offers above average sales growth potential. Although the year of 1999 was the best year in the Company’s history, the excellent sales performance was not reflected in its stock. In July of 1999, the stock reached a high level of $24 ½ per share and then proceeded to fall. In January 2000, the stock reached a low level of $15 1/8 per share. Afterwards, the stock proceeded to build a strong upward momentum and closed at $23 per share on April 18, 2000. Long-term, this stock could outperform the stocks in this sector, but during the short-term this stock could fall and test its previous low of $15 1/8 during the next five months. Investors should avoid this stock. If this stock were to fall to approximately $15 per share, speculators could buy it, and hold until it reaches approximately $22 per share, for a probable short-term gain of approximately 46 percent. On June 30, this stock closed at $22 per share and once again, we rate it avoid (price $22, dividend Nil, and P/E 8). Visit the Company’s Web site at www.stanleyfurniture.com Back to Top |
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Stocks for traders Speculators who like to trade frequently could buy stocks listed in this section. Investors should be aware that short-term trading involves much greater risk, and preferably no more than 10% of the portfolio may be invested in these stocks. Many of the stocks in the technology sector should be bought at recent low levels. Speculators could achieve short-term gains, up to 100% on some of these stocks. Unisys Corporation (NYSE symbol: UIS) is a major provider of customer services and information services. The Company makes network servers and software. After going through three consecutive years of losses, the Company finally turned profitable in fiscal 1998. For 1998, the Company reported earnings of $1.06 a share, versus a loss of $4.70 a share for fiscal 1997. When Lawrence A. Weinbach was elected CEO in 1997, he proceeded to make major changes. His initial plan was to cut $1 billion of debt from the Company’s balance sheet. The Company has achieved this goal and the long-term debt fell to $1.2 billion by December of 1998, down from the previous high level of $2.3 billion in 1996. This action alone could reduce the Company’s annual interest expense by more than $110 million. Unisys derives 67 percent of revenues from services, where profit margins are much higher than margins on hardware. The Company projects that in a few years services business could generate approximately 75 percent of annual revenues. In September of 1999, the stock reached a 52-week high of $49 11/16 and then during the following months fell below $25 per share. In February 2000, the stock proceeded to revisit its high, but due to strong resistance at $35 level proceeded to descend once again. On June 30, the stock closed at $14 9/16 per share, down 70 percent from its 52-week high. This stock could retest its recent high, but in our opinion will find strong resistance at $20 level. Nevertheless, if this were to happen, it could provide speculators with a short-term gain of approximately $5 per share, or 30 percent, during the next three months. On the other hand, patient investors could buy this stock now and hold until it revisits its previous 52-week high of $49 11/16 per share. As the services business continues to grow, the profit margins could accelerate and the earnings for the year 2000 could rise above $2 per share, the stock could break through the previous 52-week high and provide investors with a probable gain of $35 per share, or 230 percent in less than one year. We rate this stock, a strong long-term buy. People Soft Inc. (NASDAQ symbol: PSFT) designs and distributes enterprise resource planning software for large and medium size companies. The latest software can even manage payroll, benefits administration, pension administration, and scheduling. After closing at $18 13/16 on November 30, 1999, this stock proceeded in the upward direction and on January 14, 2000, reached an intra-day high of $27 ¾ per share. Then, the stock pulled back to $21 1/8 per share on January 28, 2000. On March 31, the stock of this enterprise resource planning software maker closed at $20 per share. On March 31, we have stated, “There is a probability that this stock has already reached its top and could proceed in a downward direction. Speculators should sell this stock and use the proceeds to buy shares of Boston Scientific Corporation.” (On March 31, 2000, Boston Scientific Corporation, NYSE symbol BSX, closed at $21 5/16 and we rated it a screaming buy). In April, the stock of People Soft, Inc. proceeded to fall, and then closed at $13 13/16 per share on May 31. On June 30, this stock closed at $16 ¾ per share. Buy this stock on dips. This timely stock could revisit its previous high of $27 ¾ per share during the next nine months, generating a short-term gain of approximately 90 percent. Maxtor Corporation (NASDAQ symbol: MXTR) manufactures and markets disk drives for personal computers. The company sells its products to Original Equipment Manufacturers, distributors and retailers. For the fiscal 1999, ended January 1, 2000, revenues rose to $2.486 billion, from $2.409 billion for fiscal 1998. The Company reported a loss of $50.1 million, or $0.48 a share for fiscal 1999, versus a net income of $31.2 million, or $0.47 a share for fiscal 1998. Maxtor Corporation has tremendously improved its financial position, and as of January 1, 2000, total stockholders equity stood at $255.3 million, versus a deficit of $327.5 million for fiscal 1996. At the end of the year, the Company had $353.9 million of cash and marketable securities, versus $227.6 million in the previous year. This stock reached a high of $21 ¼ in January of 1999. Afterwards, due to the oversupply of disk drives and price competition, the stock proceeded in the downward direction and fell to a low level of $4 15/16 on August 12, 1999. This stock closed at $6 1/16 per share on November 30, 1999, and we started recommending it to speculators in December. At that time we stated that this stock could reach $15 per share. After reaching an intra-day high of $8 5/16 on January 27, 2000, the stock pulled back and closed at $6 ¼ per share on February 22, 2000. This stock closed at $14 11/16 per share on March 27, 2000. On June 30, this stock closed at $10 9/16 per share and speculators could still buy it. In our opinion, this stock could reach approximately $16 per share during the next two months. Monitor this stock closely and sell as soon as it reaches our target level. Boston Scientific Corporation (NYSE symbol: BSX) is one of the worlds leading companies that designs and markets minimally invasive medical devices. The company makes coronary stents for less invasive treatment of cardiovascular disease. The stock has reached a 52-week high of $47 1/16 on July 19, 1999. Afterwards, the stock proceeded to fall at a fast pace and by October 1999, fell to an intra-day low of $17 9/16 per share. Afterwards, the stock proceeded in the upward direction and reached an intra-day high of $25 7/8 in January. The stock tested its bottom again and closed at $17 7/8 per share on February 25, 2000. This stock has already formed a double bottom. Afterwards, the stock proceeded in the upward direction and on April 19, 2000, broke through the $25 resistance level, finishing the day at $25 ¼ per share. During the recent correction the stock tested its low again, and then closed at $21 15/16 on June 30. At the recent price level, we still maintain our rating of screaming buy. This stock could reach $37 per share during the next two months. At that price level, the stock should be sold immediately. TJX Companies, Inc. (NYSE symbol: TJX) is the leading off-price retailer of apparel and home fashions. The Company operates T.J.Maxx ® stores, Marshalls ®, and A.J.Wright off-price retail stores in the United States. In Canada, the Company operates Winners Apparel Ltd. and in United Kingdom T.K. Maxx ™ off-price apparel stores. For the fiscal 1998, that ended January 30, 1999, revenues rose to $7.95 billion, from $7.39 billion for fiscal 1997. Net income rose to $424 million, or $1.29 a share, from $305 million, or $0.91 a share for fiscal 1997. As of January 30, 1999, there were 334.6 million shares outstanding, versus 349.6 million shares a year earlier. After completing a $250 million stock repurchase program, the Company announced in October 1998, that it plans to repurchase $750 million of its common stock over several years. The Company has repurchased 17.6 million shares at a cost of $501.1 million by October 30, 1999. All share repurchases were funded by internal cash flow. TJX Companies, Inc., plans to open over 150 new stores during the next three years. The Company’s annual report states “_ _ _ we continue to be confident in our ability to grow earnings per share by 15-20%.” The stock reached a 52-week high of $37 per share in April 1999, and then proceeded to fall and closed at $15 per share on March 13, 2000. Afterwards, this stock proceeded to build upward momentum and closed at $22 1/4 on March 31. In April, we recommended that speculators monitor this stock closely and buy it when it pulls back to $18 per share. This stock closed at $18 per share on May 11, 2000. Then, the stock resumed its upward trend and closed at $21 5/8 per share on May 31. On June 30, this stock closed at $18 ¾ per share and we rate it a strong buy. This stock could reach approximately $27 per share during the next two months. Once the stock reaches this level, it should be sold, for a probable short-term gain of approximately 50 percent. Callaway Golf Company (NYSE symbol: ELY) designs and manufactures premium golf clubs. On April 28, 2000, this stock closed at $16 5/8 per share and at this price level we rated it a strong buy. The stock proceeded to rise and closed at $20 9/16 per share on May 12. Afterwards, this stock proceeded to pull back, and on May 31, closed at $18 1/8 per share, on a very low volume of 209 thousand shares. Due to the recent sell-off, the stock fell and closed at $16 5/16 on June 30. As the volume grows and the stock builds upward momentum, it could reach approximately $29 per share during the next nine months. If the stock were to reach this level, it should be sold immediately. Milacron Inc. (NYSE symbol: MZ) is a major supplier of machine tools, mold bases, plastics machinery and grinding wheels. Milacron Inc. employs 13,000 people in 30 plants worldwide. After reaching a low of $14 ½ per share, the stock proceeded to ascend and rose to $23 3/16 in June 1999. This stock proceeded to build a strong upward momentum and on April 28, 2000, closed at $18 1/4 per share. Afterwards, the stock proceeded to pull back and closed at $14 ½ per share on June 30. Speculators should monitor this stock closely and sell as soon as it reaches approximately $21 per share. Western Digital Corporation (NYSE symbol: WDC) is a major manufacturer of hard disk drives that are used in variety of computers. During the years of 1996 and 1997 the stock had appreciated at a fast pace and rose from $8 1/8 to $54 ¾ per share. Due to the manufacturing overcapacity and intense competition, the stock of Western Digital proceeded in a downward direction in September 1997, and reached a bottom by the end of 1999. That was then. Now, as the sales of computers continue to grow 20 percent worldwide, the demand has caught up with capacity and the prices for hard disk drives have firmed. Money is flowing into the stocks of hard drive manufacturers. We have revised our opinion on this stock upwards, to a strong buy. Speculators should buy this stock now. On June 30, this stock closed at $5 per share, and if it were to reach $15 during the next five months, sell it immediately for a probable short-term gain of approximately 200 percent. Quantum Corporation is a major manufacturer of hard drives for systems ranging from personal computers to servers. The company also makes tape drives, and solid-state disk drives. The stock was previously listed on NASDAQ under the symbol: QNTM. The management of Quantum Corporation has decided to issue two tracking stocks, the Hard Disk Drive (symbol: HDD) and the Storage Systems Group (symbol: DSS). Both stocks trade on NYSE. On June 30, Quantum HDD closed at $11 1/16 per share, while Quantum DSS closed at $9 11/16 per share. We maintain our buy rating on both stocks. In our opinion, the stock of Storage Systems Group could double during the next twelve months. The stock of the Hard Disk Drive division could reach $17 during the next six months and it should be sold immediately at that level. Bank One Corporation (NYSE symbol: ONE) is among the largest bank holding companies in the United States. Due to the losses in its credit card division, earnings fell and the stock reached a low of $24 7/16 per share on March 7, 2000, after reaching a 52-week high of $63 9/16 in May of 1999. After Bank One announced that James Dimon, formerly of Citigroup Inc., would become its CEO, the stock closed at $34 ¼, up $3 3/8 on March 28. In April, we stated that this stock could pull back to approximately $28 per share and speculators could start accumulating it at that level. On May 8, the stock of Bank One Corporation reached an intra-day low of $28 ¾ and then resumed its upward momentum. During the recent sell-off, this stock pulled back and closed at $26 9/16 on June 30. We maintain buy rating on this stock. James Dimon could turn this bank holding company around, and perhaps a year from now this stock could reach approximately $50 per share. Once this stock reaches our target level, speculators should sell it immediately, to lock in a gain of approximately 70 percent. Back to Top |
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Model Portfolio Applied Materials, Inc. (NASDAQ symbol: AMAT) is a major supplier of wafer processing equipment that is used to produce semiconductors. The Company produces systems that use physical vapor deposition technology, chemical vapor deposition and oxide etching. For the fiscal year ended October 31, 1999, revenues rose to $4.86 billion, a 20 percent increase from $4.04 billion for fiscal 1998. Net income rose to $748 million, or $1.89 a share, from $417 million, or $1.10 a share for fiscal 1998. The demand for the company’s equipment continues to accelerate in line with the growing sales of computers and telecommunication devices. Applied Materials estimates that the market for wafer fabricating equipment could double in three years to $43 billion annually. The long-term outlook for the Company is excellent. On October 14, 1997, and on March 16, 2000, Applied Materials split its stock 2-for-1. On June 30, this stock closed at $90 5/8 per share. Buy this stock and hold long-term. Boston Scientific Corporation (NYSE symbol: BSX) is one of the worlds leading companies that designs and markets minimally invasive medical devices. The Company makes coronary stents for less invasive treatment of cardiovascular disease. This stock has reached a high of $47 1/16 per share on July 19, 1999. A month later, the stock proceeded to fall at a very fast pace and by October 1999, fell to an intra-day low of $17 9/16 per share. Afterwards, this stock proceeded in the upward direction and reached an intra-day high of $25 7/8 in January 2000. The stock tested its bottom again, and closed at $17 7/8 per share on February 25, 2000. This stock has already formed a double bottom. On June 30, this stock closed at $21 15/16 per share and we maintain our rating of screaming buy. Our objective is to hold this stock short-term, with a target level of $37 per share. Monitor this stock very closely and as soon as it reaches $37 per share, sell it immediately. Cisco Systems, Inc. (NASDAQ symbol: CSCO) makes data networking equipment, data switches, and networking gear. For fiscal 1999, that ended July 31, revenues rose to $12.2 billion, a 43% increase from $8.5 billion for fiscal 1998. Net income rose to $2.096 billion, or $0.62 a share, from $1.355 billion, or $0.42 a share for fiscal 1998. Cisco Systems continues to expand its market share. The annual revenues have grown from $2.2 billion in fiscal 1995, to $12.2 billion in fiscal 1999. John T. Chambers, who is a CEO of Cisco Systems, continues to steer the company on a path to high growth. Since 1994 the stock of Cisco Systems, Inc. has risen twenty-fold and the long-term outlook for the company is excellent. In our opinion, Cisco Systems, Inc. could continue its acquisition spree and the annual revenues might reach $50 billion in six years. Cisco Systems, Inc., is positioned to offer the latest equipment to service providers, such as IP internetworking technology which allows to host Internet applications and expand their service from basic voice traffic to broadband which can carry data, provide Internet access, and video conferencing. On March 23, 2000, this stock split 2-for-1. On June 30, this timely stock closed at $63 9/16 per share. Buy this stock now and hold at least ten years. Compaq Computer Corp (NYSE symbol: CPQ) is the second largest computer manufacturer in the world. The Company designs and makes notebook personal computers, servers, consumer PCs and networking equipment. For the fourth-quarter, revenues edged lower, to $10.6 billion, from $10.9 billion for the same quarter in 1998. The turnaround is taking longer than expected. Although revenues continue to grow, the earnings are still below the levels reached two years ago therefore we recommend this stock to patient investors who are willing to hold it at least five years. The Company has efficient manufacturing operation and manages to turn over its inventory of PCs eleven times per year. Compaq sold 83% of interest in Alta Vista Web site to CMGI Inc. Compaq retained 17% equity in the Alta Vista. Both companies will promote this site. In the future it could become one of the top five sites and generate substantial amount of revenues. This stock has a strong potential to gain 500% in five years. On June 30, this stock closed at $25 1/2 per share and we rate it a long-term buy. Compuware Corporation (NASDAQ symbol: CPWR) makes software that manages corporate networks, and improves productivity. The revenues are growing at a fast pace, and for the fiscal 1999, reached $1.65 billion. The stock of Compuware Corporation reached $40 per share in December 1999. On March 31, we stated that there is a probability that this stock could fall to $16 per share during the next three months. When this stock fell below $13 per share, an additional 200 shares were bought at $12 3/8 on April 14, 2000. Due to the negative sentiment for this sector, we have revised our short-term target level to $28 per share, from $35 per share. Once this stock reaches our revised target level, these two hundred shares will be sold immediately. The remaining 150 shares will be held long-term, at least three years. Delias, Inc. (NASDAQ symbol: DLIA) sells a variety of apparel and accessories for young women. The Company conducts sales through its Web site and through brick and mortar stores. This stock reached a 52-week high of $40 per share in April 1999, and then proceeded to fall along with other Internet stocks. By November 1999, this stock reached a 52-week low of $5 ½ per share. Afterwards, the stock proceeded to rise, buoyed by optimistic expectations of higher holiday sales and reached an intra-day high of $13 ¼ per share in November 1999. During the recent correction this stock proceeded to fall and closed at a low level of $2 3/8 per share on June 30, 2000. This stock will be held in the Model Portfolio until it reaches our revised target level of $25 per share and then all of 200 shares will be sold. Dell Computer Corporation (NASDAQ symbol: DELL) is the third largest computer manufacturer in the world. The Company makes personal computers, notebook computers, servers and workstations. For the fiscal year ended January 29, 1999, revenue rose to $18.2 billion, a 48% increase from $12.3 billion for fiscal 1998. Earnings rose to $1.05 a share, from $0.64 a share for fiscal 1998. On March 5, 1999, the Company has issued a 2-for-1 stock split, the seventh in the past seven years. During the past twelve months the price of the stock has almost stood still compared to the previous years. Recently, the stock started to build upward momentum and reached an intra-day high of $59 11/16 per share on March 22. This stock could pull back to approximately $47 per share, and than slowly rise to $65 per share during the next four months. Although it is not likely that the stock of Dell Computer will appreciate at such a fast pace as it did during the past five years, in our opinion, the stock could generate a gain of 1,200% in six years. This stock closed at $49 5/16 per share on June 30, 2000. Buy this stock on dips and hold long-term, at least five years. Ericsson LM Telephone (NASDAQ symbol: ERICY) is a leading supplier of mobile phones and telecommunications equipment. The Company’s main manufacturing facilities are located in Sweden. Ericsson’s telecom equipment is among the most advanced in the world. The sales of equipment have increased significantly in China and surpassed the sales in U.S. Ericsson LM Telephone projects that by the year 2003 the number of mobile phone users could rise to over 800 million. The long-term outlook for Ericsson is excellent. ADR’s of Ericsson split 4-for-1 on May 8, 2000. On June 30, ADR’s closed at $20. Buy these ADR’s now and hold long-term. Intel Corporation (NASDAQ symbol: INTC) is the leading manufacturer of microprocessors. The Company has high name recognition, and still has approximately 85% share of the market. For 1999, revenues rose to $29.4 billion, from $26.3 billion for 1998. Net income rose to $7.3 billion, or $2.11 a share, from $6.1 billion, or $1.73 a share for 1998. The Company continues to switch production to 0.18 micron manufacturing process that yields more semiconductors from each wafer. As the sales of cellular phones continue to grow, the demand for chips made by Intel could accelerate throughout the year 2000. During the past ten years earnings grew 32% annually. The stock of Intel Corporation has kept rising ever since 30 shares were bought in March of 1995, at $78 ¼ per share. The Company issued a 100% stock dividend on June 22, 1995, another one on July 14, 1997, and a 2-for-1 stock split on April 11, 1999. Since the original 30 shares were bought, now there are 240 shares in the portfolio. During the past three months this stock has build a strong upward momentum. On June 30, this stock closed at $133 11/16 per share. Buy this stock and hold long-term. Merck & Co., Inc. (NYSE symbol: MRK) manufactures a variety of pharmaceutical products. Major brand names include Vasotec, Mevacor, Zocor, Crixivan, and Propecia. The Company continues to spend substantial percentage of gross revenues, on research and development. Merck & Co. split its stock 2-for-1 on February 17, 1999, and now there are one hundred shares in the “Model Portfolio.” On June 30, this stock closed at $75 7/8 per share. Buy this stock and hold long-term. Microsoft Corporation (NASDAQ symbol: MSFT) is the largest maker of software. The operating system made by Microsoft is used in the majority of computers. The Company has no debt and has approximately $17 billion in cash and short- term investments. For fiscal 1999, ended June 30, 1999, revenues rose to $19.747 billion, from $15.262 billion for fiscal 1998. Net income rose to $7.785 billion, or $1.42 a share, from $4.490 billion, or $0.84 a share for fiscal 1998. Stockholders equity rose to $28.438 billion from $16.627 billion for fiscal 1998. On March 29, 1999, the Company issued a 2-for-1 stock split. The anti-trust trial continues to affect the stock negatively. While the Justice Department accused Microsoft Corporation of wielding a monopoly power, the company denied any wrongdoing. Is the break-up of Microsoft Corporation the only solution? Of course not. As soon as this chapter in Microsoft’s history is closed, the stock could resume its strong upward momentum, but in the meantime this stock will be very volatile. Although these timely shares may not appreciate at previous fast pace, this stock could generate a gain of 700% in six years. The stock will be held long-term, at least five years. On June 30, this stock closed at $80 per share. At this price level we rate this stock a strong buy. Investors, who already own this stock, could add to their position. Nokia Corporation (NYSE symbol: NOK) is the world’s second largest manufacturer of mobile phones. The Company is located in Finland, with subsidiaries in the United Kingdom and China. Nokia derives 56% of its revenues from sales in Europe and 44% from sales in other continents. The long-term outlook for Nokia is excellent as the demand for company’s products grows worldwide. The Company issued a 2-for-1 split on April 16, 1998, one on April 11, 1999, and a 4-for-1 split on April10, 2000. These ADR’s continue their strong upward momentum. American Depository Receipts (ADRs) closed at $49 15/16 on June 30. Buy and hold long-term. PepsiCo, Inc. (NYSE symbol: PEP) makes soft drinks, Doritos, Sun Chips, Ruffles potato chips and Lays potato chips. For 1999, revenues edged lower to $20.4 billion, from $22.3 billion for 1998. Net income rose to $2 billion, or $1.37 a share from $1.99 billion, or $1.31 a share for 1998. In 1998, PepsiCo acquired Tropicana and several snack chip businesses in Europe, Australia and Chile. In the past forty years, PepsiCo sales grew an average of 16% per year. After the Company had spun-off its restaurants in 1997, the return on assets employed rose from 9.5% in 1996, to 16.2% in 1997. PepsiCo continues to buy back its stock. Recently, this stock proceeded to ascend and closed at $44 7/16 on June 30. As some investors take their profits in their tech-stocks and switch into old economy stocks, the shares of PepsiCo could proceed in the upward direction. Buy and hold long-term. Pfizer, Inc. (NYSE symbol: PFE) is a diversified manufacturer of pharmaceuticals and consumer products. Among its brand name pharmaceutical products is Norvasc for hypertension and Zoloff for depression. The latest addition is Viagra, a pill for erectile dysfunction. For 1999, revenues rose to $16.2 billion, up 20 percent from $13.54 billion for 1998. Net income edged lower, to $3.18 billion, or 82 cents a share, from $3.35 billion, or 85 cents a share for 1998. All data is adjusted for the 3-for-1 stock split issued on June 30, 1999. Recently, Warner-Lambert agreed to be acquired by Pfizer, Inc. The shareholders will receive 2.75 shares of Pfizer stock for each share of Warner-Lambert stock. The deal is valued at $85 billion. After the merger is completed, Pfizer, Inc., will become a pharmaceutical behemoth with extensive R & D department. The long-term outlook for the Company is excellent. On June 30, this stock closed at $47 5/8 per share. Buy this stock on dips and hold long-term. Sara Lee Corp. (NYSE symbol: SLE) is an international producer of frozen and fresh baked goods, meats and consumer products. Revenues remained flat for fiscal 1999, at $20 billion, unchanged from fiscal 1998. For fiscal 1999, company reported earnings of $1.27 a share, versus a loss of $0.60 a share for fiscal 1998. Fiscal 1998 was affected negatively by a restructuring charge of $2 billion. Sara Lee split its stock 2-for-1 on December 21, 1998. Recently this stock fell to a 52-week low of $13 5/8 per share on March 7. On June 30, this stock closed at $19 5/16 per share and we rate it a strong buy. Xerox Corporation (NYSE symbol: XRX) is the worlds largest maker of copier equipment, digital monochrome and color publishing equipment. The Company sells its products and provides services in more than 170 countries. For the year of 1998, revenues rose to $19.4 billion, and 62 percent came from service, supplies, financing, and other recurring revenues. The company’s annual report states that $100 invested in Xerox stock at the end of 1990, grew to $1,266 by the end of 1998. The stock is trading at a low P/E ratio, and is down 66 percent from its 52-week high of $63 15/16 per share. One hundred shares of Xerox Corporation will be sold as soon as the stock reaches $60 per share and the remaining 100 shares will be held long-term, at least five years. On June 30, this stock closed at $20 3/4 per share. In our opinion, this blue chip stock is oversold. We maintain a strong buy rating on this stock. Back to Top |
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Bought On June 28, 2000, fifty shares of Lucent Technologies, Inc., (NYSE symbol: LU) were bought at $57 7/8 per share and added to the “Model Portfolio.” The Company is the largest manufacturer of the telecommunications equipment. Lucent Technologies makes fiber-optic equipment and optical network equipment that allows the phone companies to increase the capacity and to provide a high speed Internet access. During the year of 1999, the stock continued its strong upward momentum and reached a 52-week high of $84 3/16 per share in December. Then, in January 2000, the stock fell at an extremely fast pace and closed at a 52-week low of $49 13/16 per share. Afterwards, the stock proceeded to ascend and reached an intra-day high of $75 3/8 per share on March 1, 2000. During the recent correction, the stock proceeded to pull back and closed below $55 per share. As the telecommunications providers acquire new equipment, the annual revenues could grow in double digits and may reach $80 billion in five years, a double from present annual revenues. The stock trades at 51 times earnings, and due to the potential double-digit growth of revenues, such P/E ratio is justifiable. In our opinion, the long-term outlook for the Company is excellent. The stock of Lucent Technologies, Inc., will be held in the “Model Portfolio” at least ten years. On June 30, the stock closed at $59 1/4 per share and we rate it a strong long-term buy. On the same day, June 28, four hundred shares of Office Depot, Inc. (NYSE symbol: ODP) were bought at $6 ¼ per share and added to the “Model Portfolio.” The Company is a major retailer of office products, with stores located in the United States and Canada. The Company also conducts sales through its Web site at www.officedepot.com and through a catalog. For the year of 1999, revenues rose to $10.27 billion, from $9 billion for 1998. Earnings rose to $0.69 a share, from $0.60 a share for 1998. On April 12, 2000, the stock rose to $14 3/16 per share on a heavy volume of 4.45 million shares, and then proceeded to fall. Four weeks later, on May 12, the stock closed at $11 per share, on a low volume of 688,000 shares. Then, on May 26, the stock fell $3 from the previous close, and finished the day at $7 5/16 per share, on a very heavy volume of 16 million shares. In our opinion, this stock is oversold. On June 30, the stock closed at $6 1/4 per share. This stock is down 73 percent, from its 52-week high of $23 13/16 per share. The stock is trading at eight times earnings, and at this low level we rate this stock a screaming buy. The sell-off in this stock was overdone. This stock will be held in the “Model Portfolio” until it reaches our target level of $19 per share, and then all four hundred shares will be sold, for a probable long-term gain of 200 percent. Before these two trades, there was $6,246 of cash in the “Model Portfolio.” After these trades there is $786 of cash left in the “Model Portfolio.” Model Portfolio Update Intel Corporation will do a 2-for-1 stock split on July 30, 2000. This will be the fourth split, since 30 shares were bought at $78 ¼ in March 1995, and added to the “Model Portfolio.” After the split, the quantity of shares in the “Model Portfolio” will rise to 480. The demand for microprocessors continues to expand and the outlook for the Company is excellent. We maintain a rating of long-term buy on this timely stock. Back to Top |
Model Portfolio Chart 6-30-2000
Cash $786 a) The quantity of shares was adjusted for a 100% stock dividend issued by Intel Corporation on June 22, 1995, a 2-for-1 stock split issued on July 14, 1997, and a 2-for-1 stock split issued on April 11, 1999. b) The quantity of shares was adjusted for a 100% stock dividend issued by PepsiCo on June 3rd, 1996. c) The quantity of shares was adjusted for a 100% stock dividend issued by Applied Materials, Inc. on October 14, 1997 and a 2-for-1 stock split issued on March 16, 2000. d) The quantity of ADR’s was adjusted for a 2-for-1 split issued by Nokia Corporation on April 16, 1998, a 2-for-1 split issued on April 11, 1999, and a 4-for-1 split issued on April 10, 2000. e) The quantity of ADR’s was adjusted for a 2-for-1 split issued by Ericsson Telephone on May 22, 1998, and a 4-for-1 split issued on May 8, 2000. f) The quantity of shares was adjusted for a 2-for-1 stock split issued by Sara Lee Corporation on December 21, 1998. g) The quantity of shares was adjusted for a 2-for-1 stock split issued by Merck on February 17,1999. h) The quantity of shares was adjusted for a 2-for-1 stock split issued by Microsoft on March 26, 1999. i) The quantity of shares was adjusted for a 3-for-1 stock split issued by Pfizer on June 30, 1999. j) The quantity of shares was adjusted for a 2-for-1 stock split issued by Cisco on March 23, 2000. Between April 1994 and July 1998, a total of $28,336 of cash was invested in the "Model Portfolio." Due to the excellent performance of the technology stocks, over the course of six years the total value of the portfolio has risen to $145,374 as of June 30, 2000. Our "Model Portfolio" has generated a gain of $117,038, or 413 percent in just six years. Investors who are just starting out should not be deterred by the size of our "Model Portfolio." Notice that a total of $28,336 was invested over the course of four years, averaging an investment of $7,000 per year. Investors who are just starting out could invest as little as $2,000 each year, but be consistent and invest that amount every year. After several years, investor could have a portfolio consisting of several blue-chip stocks. Back to Top |