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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club
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To: Boca_PETE who wrote (12119)2/26/2000 11:14:00 AM
From: E_K_S  Read Replies (3) of 15132
 
Hi Pete- Here is an interesting observation I read in a current weekly newsletter.

The Nasdaq Composite Average has doubled since 1999 advancing from 2200 to 4400. Remember that the NAZ composite is weighted by capitalization. Ten stocks accounted for 43% of the total movement in this average!

The ten most influential stocks on the Nasdaq Composite are:
1) Microsoft (8%)
2) Cisco (7%)
3) Intel (6%)
4) Qualcomm (5.5%)
5) Sun Microsystems (3.3%)
6) Oracle (3.3%)
7) JDS Uniphase (3.2%)
8) Nextel(2.5%)
9) MCI Worldcom (2%)
10)Dell (2%)

There are 4000 Nasdaq stocks. These other thousands of Nasdaq stocks have really performed poorly. The Advance-Decline Line of all the Nasdaq stocks have been heading south since April 1998.

The newsletter goes on to explain that there are 100-200 "New World Nasdaq" stocks that are prime candidates to participate in this long term move. They include electronics, medical technology and the Internet Industry. The basic theme is that these companies are expected to grow their sales and earnings by 50% to 200% a year and probably will to do that for several more years.

The author describes how several of the old world NYSE stocks have very little growth potential going forward. For example here is a list of a few NYSE companies with their earnings and "growth" covering the past three years.

1) Sears (+5%,+4%,and +14%)
2) Dow Chemical (-2%,-19%,and +3%)
3) Kellogg (+12%,-20%,and +11%)

I suspect there are many more and the values in these companies are being reduced to the lower expected growth rates going forward.

============================================================

In Summary, the conclusion that this author has come to is that investors are looking to higher growth in the Nasdaq companies. However, most of the gain so far is due to 10 NASDAQ companies and there are several hundred other companies that should participate in this growth in the future.

The key is to find undervalued undiscovered small cap companies in these new growth industries. I have been following fifty or so companies in a few growth sectors. To determine value I measure each of these companies to their peers adjusting (a) shares outstanding, (b) revenue growth, (c) market cap, (d) business overlap, (e) management expertise, and several other factors that allows me to objectively determine a current and future value.

It is a true stock pickers market. I guess one could shift some of that S&P Index money into the Russell 2000 or Willshere 5000 indexes but many of these "New World" companies are going to fail which will impact the index accordingly.

EKS
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