September 2000
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Contents Back Issues March 2000 April 2000 May 2000 June 2000 July 2000 Aug. 2000 Investing Buy & Sell Stocks for traders Model Portfolio Model Portfolio Chart |
The main reason why investors buy a stock is to see its price move steadily upwards, to realize short-term, or long-term capital gain. A typical investor will analyze the data about a company. If the data is favorable, investor buys the stock with an intention of holding it long-term, or short-term. After an investor bought the stock, it could continue its upward trend (continued in: Investing). Albertson’s, Inc. (NYSE symbol: ABS) is the second largest food-drug chain in the United States. After the merger with American Stores Company that was finalized on June 23, 1999, Albertson’s operates over 2,400 stores in 38 states. Among the stores operated by the Company are Albertson’s, Save-On, Osco Drug, Lucky Stores, Jewel, (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 (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 The main reason why investors buy a stock is to see its price move steadily upwards, to realize short-term, or long-term capital gain. A typical investor will analyze the data about a company. If the data is favorable, investor buys the stock with an intention of holding it long-term, or short-term. After an investor bought the stock, it could continue its upward trend and gain $4 a share during the first month. Then, a month later the company lowers its revenues and earnings forecast and the stock falls from $42 per share to $30 per share in two days. Although typical investor does not anticipate such a scenario, investor should decide beforehand what type of action to take if it occurs. In this volatile market any stock could fall 25 percent, or more in just a few days. All it takes is a company announcing that revenues and earnings will be lower than expected, or an analyst, or several analyst’s downgrading the stock. During such a scenario, mutual fund managers could sell large quantity of stock, and the volume of shares traded in one day could increase ten-fold, or more. While there are more sellers who want to sell the stock and not enough buyers to buy it, the intermediate support level will continue to reach new lows. When a stock falls and investor has a paper loss, here are the choices to make. First choice is to wait short-term for the stock to rebound to its previous level, then sell it and break even. Second choice is to hold the stock long-term, only if it is a large-cap blue chip. After a year, as the quarterly earnings improve and the stock builds a strong upward momentum, investor might sell it with a gain of 40 percent, or higher. Third choice is to sell the stock immediately at a loss and use the cash to buy another stock after analyzing its trend. Each investor will make a different decision depending on previous trading experience and present direction of the market. Every investor should decide what action to take before the stock is bought. Investor should make a written note pertaining to each stock, what will be done with the stock if the price falls. For example: If the stock of XYZ company falls $5 a share, sell it immediately. Or: If the stock of XX company falls $6 a share, continue to hold it long-term and monitor its chart on regular basis. It will make tremendous difference whether the stock is a large-cap blue chip, or a small cap. If it is a large-cap stock and the company’s balance sheet is strong, then surely such a stock could be held long-term. On the other hand, if it is a small cap stock and the company is spending excessive amount of cash, it could be best to sell the stock and take the loss early, versus waiting and watching the price of the stock fall to zero after the company files for bankruptcy. The Fed met on August 22 and left interest rates unchanged. Although the sales of new single-family homes edged lower, overall the economy seems to continue at the previous strong pace. It could take a few more months until the previous six interest rate increases will slow the economy. This expansionary cycle has already lasted over nine years, the longest ever, could continue through the first half of the next year. Then, once the economy starts to decelerate, the Fed could reverse its course and start easing. While the unemployment rate is at the 30-year low, there is still no pressure on wages. Wages are barely rising versus the increases above 10 percent during the expansionary cycles in 1970’s. As we enter into September, one of the two worst months of the year, the market could get very volatile. During such a scenario investors should remain calm and buy more stocks at distressed levels. In our opinion, the market could rally by the end of this year and investors could achieve gains of 50 percent, or higher on the stocks such as Lucent Technologies, Dell Computer, Compuware Corporation and Computer Associates International. Back to Top |
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Buy & Sell Albertson’s, Inc. (NYSE symbol: ABS) is the second largest food-drug chain in the United States. After the merger with American Stores Company that was finalized on June 23, 1999, Albertson’s operates over 2,400 stores in 38 states. Among the stores operated by the Company are Albertson’s, Save-On, Osco Drug, Lucky Stores, Jewel, and Acme Markets. In our opinion, the merger with American Stores Company was the best decision ever made by the management of Albertson’s, Inc. The merger will allow the Company to achieve greater economy of scale, thus improving profit margins. Although we are optimistic about the long-term performance of this stock, short-term this stock could fluctuate in a wide range. On August 22, the stock of Albertson’s closed at $31 per share. Following day, the stock fell a whopping $8 ¼ and closed at $22 3/4 per share. Just a few months ago, on June 1 the stock closed at $38 7/8 per share. Last year, the stock of Albertson’s displayed a similar trading pattern and it could once again repeat itself. Typically, the fourth fiscal quarter is the best in this sector. Gross revenues usually reach the highest level in the fourth fiscal quarter that ends in January. In our opinion, past trend could repeat itself. This timely stock could revisit its recent high of $38 7/8 by November 2000 and reward speculators with a probable short-term gain of approximately 70 percent. On August 31, this stock closed at $21 1/2 per share and speculators should buy it now (price $21 1/2, annual dividend $0.76, yield 3.5%, and P/E 19). Advanced Micro Devices (NYSE symbol: AMD) manufactures microprocessors, flash memory devices, data communications products and network products. The company has manufacturing facilities in Penang, Malaysia; Bangkok, Thailand; Singapore and Germany. AMD and Intel continue their fierce competition. In March of this year, AMD beat Intel Corporation by being the first to bring a 1 gigahertz processor to the market. Intel Corporation introduced its 1 gigagahertz chip a week later. Although the demand for microprocessors continued to grow worldwide, Intel Corporation was not able to produce enough chips due to insufficient manufacturing capacity. During that time AMD was able to increase its market share. It will be difficult for AMD to maintain this market share because Intel Corporation proceeded to expand its manufacturing capacity and could lower the price of its processors to regain lost market share. AMD could continue to spend large percentage of its gross revenues on research and development and try to keep pace with Intel by introducing faster processors to the market. As AMD sells a larger quantity of higher priced processors, the average selling price will continue to rise, thus improving profit margins. The stock of AMD reached a 52-week high of $94 5/8 per share on June 21, 2000 (after the recent 2-for-1 split this high was adjusted to $47 5/16). Before the Company issued the split, the stock was already in a downward trend. Since sales of processors are usually the lowest during summer, in our opinion this stock could continue its intermediate downward trend and fall to approximately $24 per share during the next two months. If this stock were to reach our target level, investors should start to accumulate it. Although this timely stock could be held long-term, speculators who trade it short-term may achieve better return on investment. Worldwide demand for microprocessors continues to grow 17 percent annually. At this time chip makers do not have sufficient manufacturing capacity to meet this growing demand and that will guarantee that every processor made, will be sold almost immediately. Starting in September, the sales of chips typically rise and the demand reaches the highest level by December. The stock of AMD could reach a bottom in October and then slowly proceed in the upward direction. During the first half of 2001, this timely stock could reach approximately $85 per share and speculators should sell it immediately to lock-in a probable gain of approximately $61 a share, or 250 percent. On August 31, this stock closed at $37 5/8 per share (price $37 5/8, dividend nil, and P/E n/m). Amazon.com, Inc. (NASDAQ symbol: AMZN) is a major online retailer that sells books, CDs, videos, toys, and electronic equipment. The Company has a large customer base and the main thing that other online companies don’t have, name recognition. On December 10, 1999, the stock of this behemoth reached a 52-week high of $106 11/16 per share on expectations of high holiday sales. Then, as the stocks in the Internet sector reversed their upward trend and proceeded to fall, the stock of Amazon.com reached lower level. As the Company continued to spend cash at an excessive rate, some of the investors and fund managers started selling this stock and it fell to $33 7/8 per share on June 22, 2000. Although some of the analysts are questioning Amazon.com’s business model, in our opinion, if any Internet retailer could ever turn profitable, this one will. While the Company is spending hundreds of millions on marketing, its market share continues to grow. Amazon.com, Inc. will maintain up to twelve warehouses strategically located throughout the United States. Although initial cost to buy land and build these warehouses was extensive, after these warehouses were built this cost will be fixed. While the total square footage of these warehouses is much greater than is required at this time, as the sales continue to grow these buildings could be fully utilized in a year, or two. Surely, it should be more cost efficient to list and sell books on the Website and then ship them from twelve warehouses then to sell the same quantity of books from 3,000 brick and mortar book stores. After reaching a low of $33 7/8 on June 22, the stock proceeded to retest its intermediate high and rose to $42 15/16 per share on August 30, 2000. In our opinion, due to the negative sentiment this stock could break through its recent low and fall to approximately $25 per share during the next two months. If this stock were to reach such low level, speculators should acquire it immediately. The risk of owning this stock is high therefore speculators should commit less than 8 percent of their assets to this equity. Due to the anticipation of high volume of holiday sales, this stock could be bid up to $75 per share before January. If the stock were to reach such level, speculators should sell it immediately to lock in a probable short-term gain of approximately 200 percent. On August 31 this stock closed at $41 ½ per share (price $41 1/2, dividend nil, and P/E n/m). Autodesk, Inc. (NASDAQ symbol: ADSK) is a major designer of computer aided drafting software. The Company sells its products worldwide. This stock is volatile and trades in a wide price range. Typically, the fourth fiscal quarter that ends in January is usually the strongest. On October 29, 1999, two hundred shares of Autodesk were bought at $18 7/16 per share and added to the Model Portfolio. Our target level was $36 per share. On February 7, 2000, the stock of Autodesk closed at $36 9/16 per share, already above our target level. All of the 200 shares of Autodesk were sold on February 8, 2000, at $37 3/16 per share. That was our best trade ever. The stock had doubled in just three months. On the same day, proceeds were used to buy 300 shares of Boston Scientific Corporation (NYSE symbol: BSX) at $18 7/8 per share. After these two trades, there was $1,650.60 of cash left and it was added to the existing cash in the Model Portfolio. After these two hundred shares were sold, the stock continued its upward momentum and closed at $50 9/16 per share on March 23, 2000. While the stocks of software makers were sold- off and proceeded to reach lower levels, the stock of Autodesk maintained its high level for a while. Then, the stock reversed its trend and proceeded to fall. On August 31, 2000, the stock of Autodesk closed at $28 1/8 per share. There is a probability that this stock could fall to approximately $16 per share by October 2000. Once the stock reaches this level we will rate this stock a strong buy. After the stock is bought at this low level, it should be held until it reaches our target level of $36 per share. This stock could reach our target level by March 2001 and once it does it should be sold immediately, with a probable short-term gain of 120 percent (on August 31, price $28 1/8, annual dividend $0.24, yield 0.9%, and P/E 23). CMGI, Inc., (NASDAQ symbol: CMGI) finds, acquires, develops and operates Internet companies. It is one of the worlds largest Internet investment companies. CMGI consists of three venture capital funds. CMG Ventures III that was launched in 1998 has a minority interest in Raging Bull www.ragingbull.com a web site dedicated to investors, and a minority interest in Virtual, Inc. CMGI, Inc. has developed a strategy to acquire start-up Internet companies, and then either sell them out right, or sell a minority interest and reinvest the proceeds. The company has a history of acquiring successful Internet companies. David Wetherell, who is a CEO of CMGI, Inc., continues to steer the company on the Internet path to high growth. In our opinion, the best decision was to form a strategic partnership with Compaq Computer Corporation (NYSE symbol: CPQ). CMGI, Inc. acquired a majority stake in Alta Vista, while Compaq retained 17% equity ownership in the Alta Vista business. Through this partnership, both companies plan to establish Alta Vista as one of the worlds leading Internet networks. To find out more about Alta Vista, visit the company’s Web site at www.altavista.com and to find out more about CMGI, Inc., visit the company’s Web site at www.CMGI.com In our opinion, tremendous growth opportunities are ahead. Although the stock of CMGI is trading at a high P/E ratio, in our opinion earnings could grow 60% annually and bring the price to earnings ratio down to a reasonable P/E 50 in two years. On January 12, 2000, the company issued a 2-for-1 stock split. This stock has been in a downtrend since March 2000. In our opinion, this stock could fall to approximately $28 per share in October 2000 and then it could reach approximately $90 per share during 2001. Although patient investors could acquire this stock and hold it long-term, due to the high volatility and a wide trading range this stock could be traded by speculators. This stock closed at $44 ¾ per share on August 31, 2000 (price $44 3/4, dividend nil, and P/E n/m). LSI Logic Corporation (NYSE symbol: LSI) makes chips for: cellular phones, satellite set-top boxes, DVD products and personal computers. In the year of 1996, LSI Logic started production of chips using 0.25-micron technology capable of placing 49 million transistors on a single chip. LSI Logic has manufacturing facilities in the United States, Europe and Japan. In the year of 1996 the company increased its research and development expenses by $60 million to $184 million, up from $124 million in 1995. The company may continue to invest 15-17% of revenues in R & D. On February 17, 2000, the Company issued a 2-for-1 stock split. The stock continued its upward momentum after the split, and closed at a high of $88 ¼ per share on March 10, 2000. Since then, the stock has reversed its upward trend and proceeded to fall. Due to negative sentiment on some of the stocks in this sector, this stock could continue to fall until the end of October. As the demand for chips continues to increase, the revenues and earnings of LSI Logic may continue to grow. While the long-term outlook for LSI Logic is positive, we recommend this stock to speculators for a short-term trade. This stock could fall below $24 per share during the next two months. Speculators should be patient and wait until this stock reaches our target level. Once it falls, speculators should buy it immediately and hold it until it reaches our target level of $70 per share during 2001. If this stock were to reach our buy and sell target levels, speculators could be rewarded with a short-term gain of approximately $46, or 192 percent. On August 31, this stock closed at $35 7/8 per share (price $35 7/8, dividend nil, and P/E 40). 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. Due to the sell-off in the tech sector, this stock continued to descend in July and closed at $9 9/16 per share on July 27, down 80 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 $10 per share, or 100 percent, during the next two 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, profit margins could accelerate and the earnings for the year 2001 could rise above $2 a share, the stock could break through the previous 52-week high and provide investors with a probable gain of $40 per share, or 300 percent in approximately one year. This stock was included in our list in July 2000. Since then the stock fell an additional five points and on July 31 closed at $9 13/16 per share. After testing its bottom in July, this stock proceeded to reverse its downward trend and closed at $13 per share on August 31, 2000. This timely stock is trading at a low P/E multiple. At the recent price level, we still rate this stock a strong short-term buy and a screaming long-term buy, depending on the objective and the time frame of the investor. Investors who already own this stock could add to their position. Computer Associates International, Inc. (NYSE symbol: CA) designs business application software and systems management software that allows computers to run efficiently. In addition, the Company provides software that allows corporations to manage Web infrastructure. The Company is the third largest after Microsoft Corporation and Oracle Corporation. Computer Associates International has offices in 44 countries. As of March 31, 2000, there were 557 million shares outstanding. For the fiscal 2000, ended March 31, 2000, revenues rose to $6.1 billion, from $4.666 billion for fiscal 1999. Net income rose to $696 million, or $1.25 a share, from $626 million, or $1.11 a share for fiscal 1999. The Company took a charge of $800 million for purchased research and development. In our opinion, without this charge earnings could have been as high as $2.68 a share. Computer Associates International acquired Platinum Technology International for $3.5 billion in cash. The Company also acquired Sterling Software, Inc. As of March 31, 2000, total outstanding debt reached $5.4 billion. During fiscal 2000, the Company generated $1.566 billion of cash from operations and in our opinion it is sufficient to cover the repayment of debt. In our opinion, the short-term and the long-term outlook for the Company is very good. As the debt level falls, earnings could reach $2.50 a share for fiscal 2002, thus propelling the stock to a probable level of approximately $98 per share. After reaching a 52-week high of $79 7/16 in January 2000, the stock proceeded to descend and closed at $24 13/16 on July 31, 2000. In our opinion, this timely stock has potential to revisit its 52-week high during the next ten months. This stock was added to our list of: Stocks for traders, in August 2000. On August 31, this stock closed at $31 ¾ per share. During the past four weeks this timely stock has risen $7 a share, or 28 percent. Investors who buy this stock now could still achieve a short-term gain as high as 160 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. Due to the sell-off in the technology sector, this stock broke through its support level of $10 and closed at $6 11/16 per share on July 26, on a very heavy volume of 11.1 million shares. We are maintaining our target level of $16 per share for this stock, but due to the recent negative outlook for this sector, it could take six months for this stock to reach such level. On August 31, this stock closed at $7 13/16 and at this level we rate it a strong buy. 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. 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 fell and closed at $16 9/16 per share on July 31. This is the third time the stock tested its bottom. We have revised our short-term target level from $37 per share, to $32 per share. On August 31, this stock closed at $18 13/16 per share and at this price level we rate it a strong buy. This stock could reach $32 per share during the next three 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 August 31, this stock closed at $18 13/16 per share and we rate it a strong buy. This stock could reach approximately $27 per share during the next three 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 209,000 shares. Due to the recent market sell-off, the stock fell and closed at $12 1/2 on July 31. Then, the stock proceeded to rebound and closed at $14 ½ per share on August 31. At this level, we maintain our rating of screaming buy. As the volume grows and the stock builds upward momentum, it could reach approximately $29 per share during the next five months. If the stock were to reach this level, it should be sold immediately, for a probable gain of 100 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 August 31, Quantum HDD closed at $9 3/4 while Quantum DSS closed at $13 9/16 per share. We maintain our buy rating on both stocks. In our opinion, the stock of Storage Systems Group could double during the next eleven 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, 2000. 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 was very resilient and closed at $31 13/16 on July 31. This timely stock closed at $35 1/8 on August 31. We maintain a 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. 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 August 31, this stock closed at $86 5/16 per share. Buy this stock on dips 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. On June 30, this stock closed at $21 15/16 per share and then proceeded to descend. This stock closed at $18 15/16 per share on August 31 and we rate it a strong buy. We have revised our short-term target level from $37 per share, to $32 per share. Our objective is to hold this stock short-term. Monitor this stock very closely and as soon as it reaches approximately $32 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 August 31, this timely stock closed at $68 5/8 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. 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 August 31, this stock closed at $34 1/16 per share. Patient investors could buy this stock on dips and hold it long-term. 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. Delia’s, 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 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 in November 1999. On August 31, this stock closed at $2 1/2 per share. 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. Delia’s, Inc. will merge with i Turf, Inc. subject to shareholders approval. Merged company will be called Delia’s i Turf, Inc. 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. On March 22 the stock reached an intra-day high of $59 11/16 per share. Then, the stock proceeded to pull back. During summer, sales of computers are slower than at other time of the year. The sales should start rising in September and the stock could reach a new high of $65 per share before the end of 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 $43 5/8 per share on August 31, 2000. Although there is a probability that this stock could once again fall below $40 per share, at this price level we rate this stock a screaming buy. Patient investors should hold this stock 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 August 31, ADR’s closed at $20 1/2. 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, a 2-for-1 stock split on April 11, 1999, and another 2-for-1 split on July 30. Since the original 30 shares were bought, after the stock splits there are 480 shares in the portfolio. During the past four months this stock has build a strong upward momentum. On August 31, this stock closed at $74 7/8 per share. Buy this stock on dips and hold long-term. Lucent Technologies, Inc., (NYSE symbol: LU) 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 tested its bottom again. 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 49 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 August 31, the stock closed at $41 13/16 per share. At this level we rate this stock a screaming long-term buy. Merck & Co., Inc. (NYSE symbol: MRK) manufactures a variety of pharmaceutical products. Major brand names include Vasotec, Mevacor, Zocor, Crixivan, and Propecia. The Company derives 34 percent of revenues from international sales. Merck 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 August 31, this stock closed at $69 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 affected 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 August 31, this stock closed at $69 13/16 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 timely ADRs closed at $44 3/4 on August 31. Buy and hold long-term. Office Depot, Inc. (NYSE symbol: ODP) 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 August 31, the stock closed at $7 5/16 per share. This stock is down 65 percent, from its 52-week high of $23 13/16 per share. The stock is trading at nine 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. 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 deployed rose from 9.5% in 1996, to 16.2% in 1997. PepsiCo continues to buy back its stock. As some investors take profits in their tech-stocks and switch into old economy stocks, the shares of PepsiCo could proceed in the upward direction. On August 31, this timely stock closed at $42 5/8 per share. Buy on dips 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 August 31, this stock closed at $43 1/4 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. This stock fell to a 52-week low of $13 5/8 per share on March 7. On August 31, this stock closed at $18 5/8 per share. The performance of this stock was below average, therefore once it reaches approximately $21 per share all of 200 shares will be sold. 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 July 26 the Company issued earnings for the quarter ended June 30. Earnings were lower than expected and the stock closed at $15 per share, down $3 3/16. On August 31, this stock closed at $16 1/8 per share. In our opinion, this blue chip stock is oversold. At the recent price level we rate this stock a screaming buy. Investors who already own this stock could add to their position. Back to Top |
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Model Portfolio Chart 8-31-2000
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, a 2-for-1 stock split issued on April 11, 1999 and a 2-for-1 stock split issued on July 30, 2000. b) The quantity of shares was adjusted for a 100% stock dividend issued by PepsiCo, Inc. 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 & Co. Inc. on February 17,1999. h) The quantity of shares was adjusted for a 2-for-1 stock split issued by Microsoft Corporation 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 Systems, Inc. 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 |