Tony,
I've read similar articles about stock performance during the conglomerate craze (Teledyne, ITT, etc) and the nifty fifty during the 1960's and 1970's. As I recall, it turns out there was also only one stock that showed strong growth for a significant period of time (don't remember if it was 10 or 15 years in the piece). The stock was IBM... Doesn't bode well in the long run for stocks that have valuation comparisons similar to the one I list below. The data is a bit stale since a bit of the excess has been corrected over the past few weeks. The comparison though, is pretty eye opening. One company worth as much as a nice swath of corporate America...
Regards,
John
MARKET OBSERVATIONS
AT THE MARGIN
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MARKET OBSERVATIONS - 3/28
Contrasts...After all, what is the current market all about if not dramatic
contrasts? Contrasts with the past. Contrasts with what may be considered
basic economic logic - namely profit and loss. Contrasts in investor
perceptions. Contrasts in "the old" versus "the new". Dramatic contrasts
in stock performance among individual sectors and issues. Although the
following comparison could be amassed from many different names, the folks
at UAS Asset Management draw together a diversified group to contrast
against the current "symbol" of the new, new thing:
COMPANY NAME
3/23/00 Market Cap
1999 Revenues
1999 Earnings
Ford
$ 53.75 billion
$ 162.56 billion
$ 7.22 billion
Texaco
27.7
35.06
1.15
Merrill
39.56
34.88
2.58
Du Pont
57.36
26.94
7.68
Aetna
8.24
26.45
.69
Intl. Paper
16.08
24.58
.18
Sara Lee
16.42
20.15
1.17
Raytheon
6.34
20.04
.4
Caterpillar
14.19
19.70
.95
AMR
4.71
19.13
.99
Fedex
11.53
17.37
.63
MMM
35.03
15.66
1.76
McDonalds
47.64
13.26
1.95
Archer Daniels
6.52
13.21
.19
Goodyear
3.67
12.88
.24
JP Morgan
23.8
11.82
2.02
Anheuser Busch
28.14
11.7
1.4
Lilly
70.2
9.91
2.72
Staples
9.74
8.84
.33
FOX Entertainment
18.74
7.94
.18
Con Ed
7.02
7.49
.69
Apple
22.73
6.77
.63
Maytag
2.66
4.32
.33
Hilton
2.81
2.33
.17
Dow Jones
6.66
2.0
.27
TOTAL
$ 541.24 billion
$ 535.0 billion
$ 36.52 billion
Price/Sales
1.01x's
Price/Earnings
14.82x's
Compared to what? Compared to this:
COMPANY
3/23/00 Market Cap
1999 Revenues
1999 Earnings
CISCO
$ 541.27 billion
$15.0 billion
$ 2.54 billion
Price/Sales
36.03x's
Price Earnings
213.1x's
Does this mean that Cisco is wildly overpriced and surely destined for a
fall? Maybe, but it's certainly not definitive by any means. It's simply a
study in contrasts. It's a reflection of perceptions. It's an expression
of confidence, or in the case of the top table, lack thereof. It may also
simply be a case of widespread investor innocence and naivet‚. How else
could it be a mania in technology stocks if it were otherwise?
At The Margin...No, this won't be another soliloquy on the subject of margin
debt. We want to spend a few minutes talking about the concept of change
"at the margin" and how the forces of incremental change can be so important
in determining major market turning points. As you know, most all the major
tops in our market throughout history were not triggered by any singular
"event". They were toppled by the multiple attacks of many small armies of
incremental change. The 1929 and the 1973 secular tops have no definitive
singular catalysts. In 1929 it was excessive monetary expansion, excessive
confidence in the equity market, dislocations in foreign currency markets,
and ultimately a shift in perceptions broadly. In 1973 we had OPEC worries,
a nifty fifty predecessor environment, an infatuation among the public with
go-go mutual funds, etc. None of these characteristics was enough to spark
a topping in the equity markets individually. Collectively, they were the
levers that were able to coincidentally move the formerly immovable object.
For many bears today, there is a real temptation to want to believe in
having identified "the" catalyst that will spark the equity carnage. Being
too early is a terrible curse, continually frustrating, and can, if you are
not careful, take you "out of the game" (both from an emotional and monetary
perspective). The key is pacing and patience. Easy to say and tough to
live with when you view the markets on a daily, if not hourly or continuous
basis. Imagine having lived through 1928-1930 in the US or 1988-1990 in
Japan. Topping markets are a process, not singular events. We view our
role in writing this Market Observations piece as one of highlighting the
small events that we believe are levers that will ultimately change the
direction of the overall equity market. We can't tell you the timing. We
can only verify that the contrary levers exist, are in place, and are
exerting pressure against what seems |
