March 2000
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Contents Investing Buy & Sell: Housing Manufacturers Stocks for traders Model Portfolio Sold Bought Model Portfolio Chart |
Current Economic Situation Favorable Factors Producer Price Index- The index remained unchanged in January, after rising 0.1% in December. Last year the index rose 2.5% for the year. Leading Economic Indicators- The index of leading economic indicators rose 0.4% in December, to 108.6, after rising 0.3% in November, and indicates that economy will continue to expand during the next six months. Consumer confidence- In February, consumer confidence fell 3 points to 141.8 from 144.8 in January. Although it is the first decline since October, consumer confidence remains at a 32-year high and was barely affected by the recent fall of the Dow Jones industrial average below the 10000 level. Unfavorable Factors Gross Domestic Product- As there is no end in sight for this nine-year old economic expansion the gross domestic product was revised upward to an annual rate of 6.9% for the fourth-quarter. In our opinion, the Fed will have to slow the economy to a more manageable pace and could raise interest rates in three consecutive moves, each time by 25 basis points, or a quarter of a percent. Oil- The price of crude oil rose to $30.43 a barrel on February 29, from $27.63 a barrel reached on January 31. Oil producers plan to increase output, but it will take several months until the price of gasoline falls substantially. |
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Investing Every bull market is bound to have corrections, because if stocks were to rise in price without any pullbacks it would be easy for all of the investors to make money. During such a scenario, brokerage houses would barely make any money because investors would hold their stocks long-term. In a real world, such a scenario will never happen. The indexes and individual stocks will continue to fluctuate, and occasionally we will have a correction. The volatility in this nine-year old bull market is much higher than in the previous bull markets as some of the stock mutual fund managers dart in and out of different sectors. After closing at a low level of 9862.12 on February 25, which placed it in the correction territory, the Dow Jones industrial average proceeded to rebound and closed at 10128.31 on February 29. While the stocks in the majority of sectors continue to under perform the market, new money continues to flow into tech stocks and the prices continue to reach lofty levels. This scenario is providing speculators who trade short-term, with many opportunities to make a quick profit, or a loss, depending on the outcome of each trade. Many investors would like to trade stocks short-term and generate high gains. Unfortunately it is not an easy task to time a stock within a span of time of less than three months. Although a small percentage of speculators are able to generate gains on their shot-term trades, others lose money. Speculator can’t just buy any stock and then expect to sell it a month, or two later at much higher price. You have to study the price trend of the stock, analyze the chart, and then make your decision. On many occasions, the trade turns against the speculator. For example, speculator bought a stock of XYZ Company in January at $28 per share after analyzing the price trend and its chart. On February 4, the company reported quarterly earnings that mat estimates, but analysts expected earnings to exceed estimates, and after the announcement the stock drops four points, to $24 per share. In such a scenario, speculator has three choices. First choice is to sell the stock at a loss and then use the cash to buy another stock after analyzing its trend. Second choice is to wait short-term for the stock to rebound to its previous level, then sell it and break even. Third choice is to hold this stock long-term, only if it is a blue chip. After several months, or a year, as the quarterly earnings improve and the stock builds a strong upward momentum, speculator could sell it with a gain of 40 percent, or higher. Each speculator will make a different decision depending on previous trading experience and present direction of the market. Speculators should remember that trading stocks short-term is not easy and all of the trades may not be profitable. That is why we repeatedly state in the section “Stocks for traders” that speculators commit no more than 10 percent of their assets for short-term trading. On the other hand, when an investor buys a large-cap stock with an intention of holding it long-term, such a stock has to be monitored at least on the quarterly basis. When 60 shares of Nike, Inc. Class B (NYSE symbol: NKE) were bought on January 26, 1998, at $40 5/8 per share and added to the “Model Portfolio” our objective was to hold this stock long-term. On May 11, 1999, the stock of Nike, Inc., rose to a high of $65 1/2 per share. We continued to hold it in our “Model Portfolio” because at that time it appeared that this stock was maintaining its upward momentum. In December 1999, the stock of Nike fell below $50 per share. At that time we were not certain if it was a temporary pullback, or an onset of a downward trend, but we were not satisfied with the performance of this stock. That is why a decision was made to sell it, and all 60 shares of Nike Class B were sold on January 31, 2000, at $45 5/8 per share. The cash proceeds were used to buy 150 shares of Compuware Corporation (NASDAQ symbol: CPWR) and this stock will be held long-term, at least three years. As the annual revenues and earnings continue to grow, this stock could triple in value in three, or four years. If this stock were to triple in value in three years, we may consider selling half of the shares to lock in the gain and hold the remaining half at least five more years. This is the time of the year when the taxpayers start rummaging through their files to gather all of the necessary paperwork to fill out their Income Tax return. Individuals have to pay attention and make sure that they claim all of the available deductions. Here are some of the things you can do. First of all, gather all of your paperwork. Provide your tax preparer with a copy of your last year’s tax return and your W-2 form. Don’t forget to deduct mortgage interest, and taxes paid on your residence. Also, be sure to provide your tax preparer with a list of medical expenses, if you had any. Second of all, make sure you deduct your IRA (Individual Retirement Account), or 401 (k) contributions. If you have not made a contribution for the past year, you may still contribute $2,000 to your IRA before you file your Tax return, but not later than April 14. Furthermore, taxpayers who are married can contribute $2,000 to their own IRA, and $2,000 to an IRA established for a spouse who is not employed. Third of all, consider converting your existing IRA to Roth IRA. Such a conversion will be considered a taxable distribution from your IRA and will be taxable, but will not be subject to the 10 percent penalty for early withdrawal. The taxable amount on the regular IRA that was converted into Roth IRA will be due in the year when the conversion was done. One of the biggest advantages of a Roth IRA is that no taxes are due on qualified withdrawals, while withdrawals from traditional IRA are taxable. Before you convert your traditional IRA into Roth IRA discuss it with your financial planner, or a CPA, because once the conversion is done, it can not be reversed. It is not too early to start planning for the next year. Ask your tax preparer what you can do. Perhaps you may contribute more to your 401(k)-retirement plan. Improve your record keeping and be prepared. Do not wait until late March to have your tax return prepared. At that stage your tax preparer may be very busy and may not spend more than an hour preparing your return, thereby missing some tax deductions. Remember, every tax dollar saved and invested may grow to $8 ten years later, or $64 after twenty years. Make sure that you claim all of the tax deductions due you because every $1,000 saved in taxes and invested today could grow to $64,000 after twenty years. As the inflationary fear was reignited, many investors sold their stocks and went into cash. Furthermore, as some of the mutual fund managers eliminated their positions there was no support and the price of some of the stocks fell drastically. Technology sector is the best sector to make money. Several blue chip stocks in the technology sector such as Nokia Corporation, Cisco Systems, and Applied Materials reached new highs and were able to maintain their high levels. We will continue to maintain long positions in the stocks held in the “Model Portfolio”, except for the shares of Boston Scientific Corporation and Delias, Inc., which will be sold as soon as each achieves our target level. Back to Top |
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Buy & Sell The sales of single-family homes continue to grow. Although the 30-year fixed mortgage rate has risen to 8.3 percent, it has barely affected sales. In January, construction of new housing rose 1.5 percent. As long as economy continues to expand and consumer confidence remains high, some of the companies in this sector could outperform the market during the next two years. Due to the fear of recession, the stocks in this sector are trading near their 52-week low. In our opinion, the Fed could raise interest rates during their next two meetings, each time by 25 basis points, or a quarter of a percent. Although this could decrease the demand for new single-family homes, as long as the Fed manages a soft landing and the consumer confidence remains at a high level, it will barely affect sales. As long as the economy does not contract drastically, the stocks of homebuilders could start in the upward direction, and some could even triple in price during the next two years. Some of the stocks in this sector could reach lower levels. Investors should wait until June of this year and then start buying stocks in this sector. American Homestar Corporation (NASDAQ symbol: HSTR) is one of the leading vertically integrated manufactured housing companies. As of May 1999, the company operated 14 manufacturing plants, 125 Company owned retail sales centers, 80 franchised retail sales centers, and distributed homes through more than 300 independent retail locations in 28 states. In addition, the Company also provides retail financing through its finance affiliate, 21st Century Mortgage. There were 18.7 million shares outstanding at the end of fiscal 1999. For the fiscal year ended May 31, 1999, revenues rose to $654 million, from $513.9 million for fiscal 1998. Net income rose to $17.9 million, or $0.96 a share, from $ 17.7 million, or $0.98 a share for 1998. This was the fifth consecutive year of record high revenues. The Company’s annual report states that annual revenues have potential to reach over $800 million. American Homestar Corporation continues to expand. In fiscal 1999, the Company added 39 stores, bringing the total to 125 stores. Furthermore, the Company acquired R-Annell Homes, Inc. that makes modular and manufactured homes. American Homestar Corporation introduced the industry’s first national franchise program two years ago. The franchise stores operate under the name Oak Creek Village and feature exclusively American Homestar homes. During the next six quarters, the Company plans expand the number of franchised stores from 80, to 150 stores. During the past five years annual revenues have risen from $183.1 million for fiscal 1995, to $654 million for fiscal 1999. At the end of fiscal 1999, the Company had $60.8 million in working capital , total assets of $439.3 million, and total debt of $216.485 million. Shareholders equity rose from $34.7 million in fiscal 1995, to $135.5 million in fiscal 1999. In our opinion, the near term sales will depend on the economy, consumer confidence, and the company’s implementation of its expansionary plan. If the Company were to attain its target level of 150 franchise stores during the year 2000, the revenues could increase substantially and reach $1 billion in fiscal 2001. The stock is trading near its 52-week low, down 75 percent from its 52-week high of $8 7/16 per share. The risk of owning this stock is above average. This stock could be bought by speculators who could acquire a small position and hold it until it reaches approximately $8 per share, for a probable gain of 250 percent during the next two years (price $2 1/8, dividend Nil, and P/E n/m). Cavalier Homes, Inc. (NYSE symbol: CAV) designs and manufactures single-family houses with a focus on the low-to medium-priced manufactured housing market. As of December 1999, the Company had 23 home manufacturing facilities. The Company also provides home financing and insurance. Cavalier Homes markets its houses through 232 dealers participating in its Exclusive Dealer Program and through approximately 1,000 non-exclusive independent dealers in 30 states. As of December 1998, there were 20.144 million shares outstanding. The Company had an excellent year. For the year of 1998, revenues rose to $614.070 million, from $561.188 million for 1997. Net income rose to $18.7 million, or $0.93 a share , from $10.2 million, or $0.51 a share for 1997. During 1998, the average price of homes sold rose to $24,700 from $23,500 in 1997. As of December 1998, the Company had $41.707 million in working capital and the book value of $7.46 per share. During 1998, return on equity rose to 13.4 percent, from 8 percent in 1997. The annual report states that Company plans to reach one billion in annual revenues by 2003. In 1998, the Company bought back 500,000 shares of its common stock. The Company’s Board of Directors authorized the repurchase of an additional 1.5 million shares. The stock is trading near its 52-week low and is down 60 percent from its 52-week high. At the present level, the stock is trading at approximately half of its book value of $7.46 per share. In our opinion the stock is a screaming buy at the present price level. As the revenues continue to grow, earnings should improve and the stock could resume its strong upward momentum. Patient investors who buy this stock now could achieve a gain of 150 percent during the next two years. As soon as this stock rebounds to approximately $10 per share, sell it immediately to lock in your gains (price $3 11/16, annual dividend $0.16, yield 4.3% and P/E 31). Champion Enterprises, Inc. (NYSE symbol: CHB) is a major producer of manufactured housing, with 65 home building facilities in eighteen states and western Canada. Furthermore, Champion is the third largest retailer, operating 264 retail housing centers in 28 states. As of January 2, 1999, there were 47.8 million shares outstanding. For the fiscal year of 1998, ended January 2, 1999, revenues rose to $2.3 billion, from $1.7 billion for fiscal 1997. Net income rose to $94 million, or $1.91 a share, from $71 million, or $1.45 a share for fiscal 1997. During fiscal 1998, gross margin rose to 17.8 percent, from 15 percent in fiscal 1997. The Company has achieved a market share of 18.3 percent in fiscal 1998, a slight increase from 17.7 percent for the previous year. Although Champion Enterprises is the largest home manufacturer, it remains lean and very efficient. The Company’s annual report states that there are only 75 employees working at the corporate office. The Company’s manufacturing and retailing segment is decentralized and that allows it to be more competitive in the local markets. Furthermore, the annual report states that Company does not own Corporate planes, or art collections. The Company encourages its employees to own shares of Champion stock. Furthermore, the Board of Directors receives shares of common stock as their only compensation. During fiscal 1998, the Company built four plants and acquired seven. On the average it takes the Company approximately three months to complete a retail acquisition. The Company has divested its non-core assets. In February 1998, the Company completed its sale of Champion Motor Coach, Inc., that manufactured mid-size buses. In our opinion, as the annual revenues continue to grow the Company could achieve greater efficiency of scale and profit margins could continue to improve. The stock is trading at a low level, almost at its book value. We rate this stock a strong buy. This stock has potential to revisit its 52-week high of $21 11/16 per share during the next two years and investors who buy this stock could achieve a gain of approximately 200 percent (price $6 5/16, annual dividend Nil, and P/E 6). D.R.Horton, Inc. (NYSE symbol: DHI) is one of the largest homebuilders in the United States, with 11 operating divisions in 23 states. The Company offers high quality homes ranging ion price from $80,000 to $600,000. As of September 1999, D.R. Horton had 3,355 employees and there were 62.8 million shares of common stock outstanding. The Company had another excellent year. For the fiscal 1999, revenues rose to $3.156 billion, up from $2.177 billion. Net income rose to $159.8 million, or $2.50 a share, an increase of 71 percent from $93.4 million, or $1.56 a share for fiscal 1998. Total assets rose to $2.362 billion from $1.668 billion for fiscal 1998. Furthermore, book value rose to $12.70 per share for fiscal 1999, up from $9.84 per share for the previous year. Fiscal 1999, was 22nd consecutive year of growth. The Company continued to grow through internal expansion and acquisitions. In fiscal 1999, the Company acquired Cambridge Homes, the largest builder in Chicago and the leading builder of active-adult communities in the Midwest. The Company has $775 million revolving credit facility with 15 banks. As of September 30, 1999, the Company had $128.6 million of cash. During fiscal 1999, the Company’s debt to capitalization ratio fell 239 basis points, to 57.7 percent, which is among the lowest in this sector. To find out more, visit the Company’s Web site at www.DRHORTON.com The stock fell from a 52-week high of $20 per share, to $10 ½ per share in October 1999. Then, the stock reversed its downward trend and rose to $15 per share in November 1999. Due to the renewed fear of probable recession, the stock fell to $11 per share in January 2000, but was more resilient than stocks of other home builders which fell as much as 75 percent from their high. During the past five years annual revenues rose from $869.5 million for fiscal 1995, to $3.156 billion for fiscal 1999. The Company plans to reach $4 billion in annual revenues in the near term. D.R.Horton has strong balance sheet, and in our opinion the stock has potential to revisit its previous high of $20 per share during the next 18 months. We rate this stock a strong buy (price $11 1/4, annual dividend $0.16, yield 1.4%, and P/E n/m). Hovnanian Enterprises, Inc. Class A common stock (AMEX symbol: HOV) is the fourteenth largest homebuilder in the United States. The Company designs, builds, and sells a variety of home designs, from entry-level condominiums to luxury single-family homes. As of October 1999, the Company had 1,642 employees and there were 21.6 million shares of common stock outstanding. For the fiscal 1999, that ended October 31, revenues rose to $948.3 million, up from $941.9 million for fiscal 1998. Net income rose to $30.1 million, or $1.39 a share, from $25.4 million, or $1.16 a share for fiscal 1998. During fiscal 1999, gross margins rose 360 basis points to 20.9 percent, from 17.3 percent in the previous year. At the end of fiscal 1999, book value rose to $10.67 per share, versus $9.34 per share in the previous year. During fiscal 1999, the company repurchased 772,900 shares of Class A common stock. The Company continues to expand through internal growth and acquisitions. In fiscal 1999, the Company acquired The Matzel Mumford Organization, Inc., a luxury home builder based in New Jersey. Furthermore, the Company acquired the Goodman Family of Builders L.P., the eight largest homebuilder in Dallas/Fort Worth area. The Company’s annual report states that for the fiscal year 2000, bulk of the profits will be pushed back into third and fourth quarters. In order to improve productivity the Company has installed enterprise-wide software system. This software will allow the Company to deploy efficient standardized process through all operating segments. The stock of Hovnanian Enterprises has traded in a range between $9 ½ and $5 ¼ per share. Although the Company has strong balance sheet, long-term these shares could underperform the stocks in this sector. On the other hand, the stock of Hovnanian Enterprises could achieve a strong upward momentum during the fourth fiscal quarter that ends in October. Speculators could acquire a small position in this stock and hold it until October 2000. If this stock were to reach approximately $9 per share, sell it immediately to lock in your gains (price $5 7/8, dividend Nil, and P/E 4). Lindal Cedar Homes (NASDAQ symbol: LNDL) is the world’s oldest and largest manufacturer of cedar homes and sunrooms that are sold under the trademarks Lindal Cedar Homes and Lindal Sunrooms. The Company has manufacturing plants in Seattle and Burlington, Washington and near Vancouver, British Columbia. Lindal Cedar Homes was founded in 1945, incorporated in 1966, and went public in 1971. There are 4.125 million shares outstanding. The Company continued its turnaround in 1998, and for the year revenues fell to $37.7 million, down from $48.8 million for 1997. Although profit margins have improved, the Company posted a loss of $936,000, or $0.23 a share, versus a loss of $2.45 million, or $0.60 a share for 1997. In 1997, stockholders equity fell to $4.07 per share, from $4.48 per share for the previous year. The Company’s annual report states that prior to 1997, Lindal was profitable for 15 consecutive years. In 1998, the Company introduced a lower-priced home line called Select. Furthermore, the Company introduced an expanded line of home designs under the brand name Traditions from Lindal. These homes are conventionally framed, come in multiple styles, and are priced for the middle of the custom housing market. Traditions and Lindal Select homes cost approximately half as much as the top of the line homes made by Lindal. Lindal Cedar Homes continues to market its homes through a variety of media. In 1997, the Company released its award winning Lindal Design Gallery CD -ROM. The Company also promotes its products through its Originals plan book. Furthermore, Lindal has developed a Web site www.lindal.com that showcases extensive selection of homes and services provided by Lindal Cedar Homes. During 1998, this Web site accounted for approximately 10 percent of total sales. After such impressive results, the Company established another Web site www.lindalsunrooms.com that is devoted solely to its sunrooms. Top of the line custom homes made by Lindal exceed 4,000 square feet and these could be marketed to the growing numbers of baby boomers, as each day additional 10,000 of them will reach the age of 50 years and some of them could decide to upgrade to a larger home. In our opinion, this stock is fully valued at the present price level. As the Fed continues to raise rates, the stock of Lindal Cedar Homes could fall to approximately $1 per share by October 2000. If this stock were to reach such level, speculators could acquire several hundred shares, and then sell it as soon as it reaches approximately $3 per share for a probable short-term gain of approximately 200 percent (price $2 ¼, dividend Nil, and P/E 10). 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. Some of the stocks in the technology sector could still be bought at recent levels. The sales of computers continue to grow 20% in the United States and Europe, which could propel stocks in this sector to higher levels. Speculators could achieve short-term gains, up to 100% on some of these stocks. Sell uBid, Inc. (NASDAQ symbol: UBID). The Company operates online auction for excess merchandise such as computers, electronic equipment, software, gifts, jewelry, housewares, and sports equipment. On February 11, 2000, CMGI Inc., agreed to acquire u Bid Inc., for $400 million in stock. Stockholders of u Bid Inc., will receive one share of CMGI Inc., for four shares of u Bid Inc. The stock of CMGI Inc., has risen five-fold in 1999. On February 29, 2000, the stock of CMGI Inc., closed at $129 9/16 per share, near its 52-week high. CMGI Inc., is an excellent company, and we recommended its stock to long-term investors in September 1999 issue, when it was trading at $83 15/16 per share. We maintain a long-term buy rating on this stock. The stock of uBid Inc., was included in our section “Stocks for traders” in February issue, after it closed at $22 7/16 per share on January 31, 2000. Our target level for uBid Inc., was approximately $100 per share. If this stock were to continue its upward momentum it could have achieved such lofty level. CMGI Inc., is acquiring uBid Inc., when the stock is off 64% from its 52-week high. We suggest that speculators sell the stock of uBid Inc. to lock in a gain of 25 percent achieved in less than four weeks and use the cash proceeds to buy the stock of Boston Scientific Corporation (NYSE symbol: BSX) that has potential to reach $37 per share during the next five months. 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. Boston Scientific was founded in Watertown, MA in 1979. Through acquisitions, the annual revenues have grown to $2.2 billion in 1998, from just $2 million in 1979. On November 30, 1998, the company issued a 2-for-1 stock split. 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. During the recent correction, the stock tested its bottom again and closed at $17 7/8 per share on February 25. This stock has already formed a double bottom and if it were to break through the $25 resistance level, it could proceed in the upward direction. On February 29, this stock closed at $18 1/4 per share. This stock could reach $37 per share during the next four months. At that price level, the stock should be sold immediately. 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. During the past four years, annual revenues grew at an average of 77%, which is excellent even in this sector. Although the revenue growth may be slower in the future, this stock could continue in the strong upward direction. After closing at $18 13/16 on November 30, 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 February 29, this stock closed at $20 11/16 per share. If the upward trend were to accelerate on higher volume, this stock could reach $35 per share during the next eleven months. Speculators could still buy this stock, and if it were to reach $35 per share sell immediately for a probable short-term gain of approximately 70 percent. Downgraded to a hold Baan Company N.V. (NASDAQ symbol: BAANF) a major producer of enterprise resource planning software. It seems that this company has not done anything right during the past twelve months. Were the revenues affected by the Y2K uncertainty, or is it the failure of the management for not turning this company around in a timely manner? Out of a sudden, the stock of this Dutch software maker proceeded to fall at a very fast pace and reached a low level of $5 13/16 per share on February 29, 2000. This stock could repeat its past performance and rebound to $15 per share during the first half of the year. If the management of Baan Company N.V. were to steer the company on the right course and the revenues and earnings improve, the stock could regain its upward momentum. In 1999, the stock of this Dutch software maker fell from its 52-week high of $17 3/16 per share, to a low of $8 ¼ in April 1999. The stock is trailing other software stocks in this sector. Although there is a probability that this stock could rebound and proceed in upward direction, speculators should avoid this stock. It is too late to sell this stock, therefore speculators who own the shares of Baan Company N.V. could continue holding these shares until the stock pulls back above $10 per share. Callaway Golf Company (NYSE symbol: ELY) designs and manufactures premium golf clubs. Professional golfers who use these superior golf clubs had more wins than golfers using equipment made by competitors. Callaway Golf derives 34% of revenues from sales in the United States. In the year of 1998, the earnings were affected by lower sales in Asia and the stock fell to the same low level that it reached in 1995. In the long run, the sales could resume the rapid growth, the earnings are bound to improve and the stock could once again rise above $30 per share. After closing at $14 9/16 on November 30, this stock continued its strong upward momentum and closed at $17 11/16 on December 31, 1999. On February 29, 2000, this stock closed at $12 per share and at this price level we rate it a screaming buy. As the volume grows and the stock builds a strong upward momentum, it could reach approximately $30 per share during the next twelve months. If the stock were to reach this level, it should be sold immediately. Delias, Inc. (NASDAQ symbol: DLIA) offers a variety of apparel and accessories for young women. The company conducts sales through its web site and through brick and mortar stores. After reaching a 52-week high of $40 per share in April 1999, the stock proceeded to fall along with the rest of the Internet stocks and by November reached a 52-week low of $5 ½ per share. Afterwards, the stock proceeded to rise, buoyed by the optimistic expectations of higher holiday sales, and reached an intra-day high of $13 ¼ per share in November 1999. This stock proceeded to fall and tested its low in February when it fell to $6 5/16 per share. During the recent correction, this stock was more resilient than other stocks in this sector and closed at $6 3/8 per share on February 29. The stocks in this sector could reverse their downward trend by the end of this summer. Speculators who are willing to hold this stock for several months could acquire at least 100 shares and if it were to reach approximately $35 per share, sell it immediately for a probable gain of over 400 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. This stock reached a high of $21 ¼ in January of 1999. Afterwards, due to the oversupply of disk drives and competition, the stock proceeded in the downward direction and fell to a low level of $4 15/16 on August 12, 1999. Recently, as the sales of computers continued to grow, the stock proceeded in the upward direction. 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, and then resumed its upward trend. The stock closed at $8 per share on February 29, and we rate it a screaming buy. As the stock gains upward momentum, it could reach $16 per share during the next three months, and at that price level should be sold immediately to lock in a short-term gain of approximately 100 percent. 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 by now could have reached a bottom. Due to the intense competition, profit margins continued to fall and the stock closed at a low level of $3 1/4 per share on October 29, 1999. We have revised our target level for this stock downwards, and the length of time it will take to achieve it. This stock could reach $15 per share in two years. Speculators could buy this stock now and if it were to reach $15 during the year 2001, sell it immediately. On February 29, 2000, this stock closed at $4 1/2 per share and we rate it a strong buy. Iomega Corporation (NYSE symbol: IOM) designs and manufactures zip drives and cartridges. Although unit sales continue to rise revenues remain flat. Several major PC manufacturers already offer Iomega drives as standard equipment. In the year of 1997, the Company relocated its manufacturing facility from Roy, Utah to Penang, Malaysia. Recently, this stock proceeded to build upward momentum and closed at $4 1/16 per share on January 31. During the recent correction this stock was resilient and edged slightly lower to close at $3 3/4 per share on February 29, 2000. Speculators could acquire a small position in this stock and sell it as soon as it reaches approximately $9 per share, for a probable gain of 150 percent. Milacron Inc. (NYSE symbol: MZ) formerly known as Cincinnati Milacron Inc. is a major supplier of machine tools, mold bases, plastics machinery and grinding wheels. Milacron Inc. employs 13,000 people in 30 plants worldwide. In the year of 1997, Milacron’s joint venture in India increased production by 75% and the company plans to increase the plants capacity. After reaching a low of $14 ½ per share, the stock proceeded to ascend and rose to $23 3/16 in June 1999. On February 29, this stock closed at $13 5/8 per share and is trading at a P/E of 6. Furthermore, the stock pays an annual dividend of $0.48 per share, yielding 4%. We recommend that speculators buy this stock now, and sell as soon as it reaches approximately $24 per share. Quantum Corporation is a major manufacturer of hard drives for systems ranging from personal computers to PC workstations, and servers. The company also makes tape drives, and solid-state disk drives. In May 1998, the Board of Directors authorized the Company to repurchase approximately 14 million shares of its common stock. 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 February 29, Quantum HDD closed at $7 7/8, while Quantum DSS closed at $10 3/8 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 $15 in twelve months and if it were to reach that level, it should be sold immediately. Back to Top |
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Model Portfolio Sold all 200 shares: Autodesk, Inc. (NASDAQ symbol: ADSK) a major designer of computer aided drafting software. The company markets its products worldwide. This stock is very volatile and trades in a wide price range. During the past 52 weeks, this stock reached a 52-weekhigh of $49 ¼ per share, and in October 1999, fell to a low of $17 per share. On October 29, 1999, two hundred shares of Autodesk, Inc., were bought at $18 7/16 per share, to be held short-term. This stock has exceeded our expectations and reached our target level of $36 per share on February 6, 2000. All 200 shares were sold on February 7, at $37 3/16 per share. This was our best trade ever. The stock has doubled in less than three months. On the same day, the cash proceeds were used to buy 300 shares of Boston Scientific Corporation (please read “Sold” section). 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. The long-term outlook for the Company is excellent. On February 29, 2000, this stock closed at $182 15/16 per share. Buy this stock on dips and hold long-term. 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. In fiscal 1999, Cisco Systems, Inc., acquired American Internet Corporation, Summa Four, Inc., Clarity Wireless, Inc., Selsius Systems, Inc., Pipe Links, Inc., and Amteva Technologies 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. On October 29, balance of cash received from the sale of two hundred shares of Manpower was used to buy 50 shares of Cisco Systems, Inc. at $73 7/8 per share and will be held long-term, at least ten 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 February 29, 2000, this stock closed at $132 3/16 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. During the recent correction this stock pulled back and tested its bottom again. On February 29, 2000, this stock closed at $24 15/16 per share and we rate it a strong 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. Although there is a probability that this stock could fall to $16 per share during the next three months, investors should start accumulating it now. Our objective is to hold this stock long-term, at least three years, and if it were to quadruple in value, it will be sold to lock in a gain of approximately 300 percent. 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. After reaching a 52-week high of $40 per share in April 1999, the stock proceeded to fall and by November 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. This stock proceeded to fall and tested its low in February when it fell to $6 5/16 per share. As the sales continue to grow, the stock could resume its upward momentum, and if it breaks through $15 per share it could revisit its previous high of $40 per share during the next eleven months. The stock is trading at 6 times earnings, which is very low for an Internet stock. On February 29, 2000, this stock closed at $6 3/8 per share. This stock will be held in the Model Portfolio until it reaches our target level of $35 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, 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 previous years. In our opinion, this is temporary. Although revenues continue to grow approximately 40% and the orders for Dell Computers placed through the company’s web site are rising, no stock can triple, or quadruple in value every year. After a few years of such incredible performance, the stock has to take a break and then after a while could resume its upward trend. In our opinion, this is what the stock of Dell Computer is doing, taking a break. In our opinion, the stock could resume its strong upward momentum this year. 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 $40 13/16 per share on February 29, and we rate it a strong buy. Buy this stock now 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 between now and the year 2003, the number of mobile phone users could rise from 240 million to over 800 million. The long-term outlook for Ericsson is excellent. ADR’s of Ericsson closed at $96 on February 29, 2000. Buy on dips 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. On February 29, this stock closed at $113 per share. Buy this stock on dips 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. For the fourth-quarter revenues rose to $8.97 billion from $7.5 billion for the same quarter in 1998. Net income rose to $1.57 billion, or 67 cents a share, from $1.4 billion, or 58 cents a share for the fourth-quarter a year earlier. Merck & Co. split its stock 2-for-1 on February 17,1999, and now there are one hundred shares in the Model Portfolio. This stock closed at $61 9/16 on February 29. 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 $19 billion in cash and short- term investments. For the second fiscal quarter ended December 31, 1999, revenue rose 18 percent, to $6.11 billion, from $5.2 billion for the same quarter a year ago. Net income rose to $2.4 billion, or 44 cents a share, from $2 billion, or 36 cents a share for the same quarter a year earlier. 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 accuses Microsoft Corporation of wielding a monopoly power, the company denies any wrongdoing. Is the break-up of Microsoft Corporation the only solution? Of course not. In our opinion, eventually Microsoft could work out some kind of settlement with the Justice Department. As soon as this chapter in Microsoft’s history is closed, the stock could resume its strong upward momentum. Although the stock may not appreciate at previous fast pace, it could generate a gain of 700% in six years. The stock will be held long-term, at least five years. On February 29, this stock closed at $89 3/8 per share. We rate this stock a strong buy. Nokia Corporation (NYSE symbol: NOK) is the worlds 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. The Company issued a 2-for-1 split on April 16, 1998, and another one on April 11, 1999. The ADR’s continue their strong upward momentum. American Depository Receipts (ADRs) closed at $189 ¾ on February 29. Buy on dips 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. On February 29, this stock closed at $32 ¼ per share. Buy this stock 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. 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 February 29, this stock closed at $32 1/8 per share. Buy 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. This stock could quadruple in five years. Due to the recent correction the stock of Sara Lee closed at $15 per share on February 29. We rate this stock 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 ten times earnings, 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 February 29, this stock closed at $21 11/16. In our opinion, this blue chip stock is oversold and at the recent price level is a screaming buy. Back to Top |
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Sold On February 7, the stock of Autodesk, Inc. (NASDAQ symbol: ADSK) closed at $36 9/16 per share, above our target level. All of the 200 shares of Autodesk were sold on February 8, at $37 3/16 per share. This was our best trade ever. The stock of Autodesk was bought on October 29, 1999, at $18 7/16 per share, to be held short-term. This stock has exceeded our expectations and reached our target level in three months. Bought On the same day, cash proceeds were used to buy 300 shares of Boston Scientific Corporation (NYSE symbol: BSX) at $18 7/8 per share. Boston Scientific Corporation 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 of Boston Scientific Corporation 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. During the recent correction, 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, and if it were to break through $25 resistance level it could proceed in the upward direction. In 1999, the stock of Boston Scientific Corporation rose from a low level of $25 in February, to $41 ½ per share seven weeks later. If the money flowing into this stock were to rise along with high trading activity, this stock could once again repeat its previous performance. Our objective is to hold this stock short-term, with a target price of $37 per share. Monitor this stock very closely and as soon as it reaches $37 per share, sell it immediately. Back to Top |
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Model Portfolio Chart 2-29-2000
Dividends, Cash $2,227 Total $138,223 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. d) The quantity of ADR’s was adjusted for a 2-for-1 split issued by Nokia Corporation on April 16, 1998, and a 2-for-1 split issued on April 11, 1999. e) The quantity of ADR’s was adjusted for a 2-for-1 split issued by Ericsson LM Telephone on May 22, 1998. 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. Back to Top |