Elwood, The only reference to CPQ I could find in Barron's was in Andrew Bary's weekly market wrap column. Here is an excerpt from it...
John
PS - It sure doesn't feel like the Dow was down 317 last week...
Back at Thanksgiving, the Dow Jones Industrial Average seemed to be
whizzing along the road to the 10,000 mark. But that changed last week as
the benchmark average fell 317 points, or about 3%, to close at 9016. It was
the Dow's worst weekly setback in two months.
The mood on Wall Street turned festive by Friday, however, with stocks
scoring solid gains in the week's final session. The proximate cause was the
latest government data showing that the economy posted impressive job
growth in November, and that the unemployment rate fell 0.2%, to 4.4%. For
the moment, the U.S. economy appears to be holding up fairly well in the face
of persistent weakness overseas.
The Dow rose 136 points Friday, while other key indexes scored even bigger
percentage gains. Indeed, the Dow has been trailing both the S&P 500 and
the Nasdaq lately because of the weak showing by some of the Dow's
economically sensitive stocks. Dow losers last week were led by Boeing and
Sears Roebuck, which both warned of weaker-than-expected profits.
For the week, the
Dow fell 3.4%,
leaving it with a
year-to-date gain of
14%. The S&P 500
was off a more
modest 1.3% to 1176
in the five sessions,
while the Nasdaq
declined just 0.6% to
2003. The S&P is up
21% in 1998 and the
Nasdaq has risen
27.5%. The S&P is
now on pace for an
unprecedented fourth
straight year of
20%-plus returns.
The Russell 2000, the
small-stock
benchmark, fell 1%
last week and is now
off 8.8% in 1998,
leaving it an amazing
30 percentage points
behind the S&P.
Maybe next year the
small-caps finally will
shine.
In hindsight, the
pullback in the major
indexes perhaps was
overdue given the
strength of the rally
from October 8
through the end of last
week. Analysts at ISI
Group in New York
calculate that a runup
of the magnitude of
the Dow's 23% climb
in the 37 trading
sessions from
October 8 to its peak
of 9374 on
November 23 has
occurred only four
other times since
1968.
The other such rallies happened in 1975, 1982, 1986 and 1991. All four of
those moves were similar to the current advance because they played out
against a backdrop of slowing inflation, declining corporate profits, easier
U.S. monetary policy and financial stress. Importantly, stocks continued to
rise after each of the four advances, with the Dow gaining an average of 9%
over the ensuing three months.
One discordant note is being sounded now by the Dow Jones Transportation
Average, which fell 0.8% last week to 3052 and which remains 15% below
its July peak. Dow Theory holds that it's bearish if a new high in the Dow
Industrials isn't accompanied by a new high in the Transports. But in a
post-industrial age, many investors seem to care little about what happens to
airline and railroad stocks, especially since they represent such a tiny part of
the overall market.
"The rally is not over," says Vernon Winters, chief investment officer at Mellon
Private Asset Management. "Professionals may have panicked in August and
September, but the retail investor never lost faith. Stocks have become the
zeitgeist, or spirit of the age. It's going to take more than one serious
correction to turn people away from stocks."
Winters says that in a low-inflation, low-interest-rate world, investors should
be willing to pay "extraordinarily" high multiples of earnings for true growth
stocks. That certainly has been the case this year. Investors have rewarded
companies like Microsoft, Cisco Systems, Lucent Technologies, Pfizer and
Warner-Lambert with huge share-price gains because those companies have
delivered solid profit gains of 20% or more.
One of the trends this year has been a shift by institutions away from
consumer multinationals, such as Coca-Cola and Gillette, in favor of the big
drug and technology issues. Just two years ago, the major drug stocks traded
for half the P/E multiples of Coke and Gillette. But now the P/Es are similar.
The reason: Coke and Gillette are struggling to generate any profit growth this
year amid difficult global conditions, while the major drug and tech companies
have been relatively unscathed.
Coke, which fell 2 11/16 to 69 last week, is up just 3.5% for the year,
marking a rare year of underperformance for the company relative to the
S&P. Gillette was off 2 1/2 to 43 5/8 last week amid some concern about its
fourth-quarter earnings. The view on Wall Street seems to be that Gillette will
hit current Street estimates, but that it may have to resort to some financial
games to do so. Gillette's new Mach 3 razor appears to be doing well, but
almost all of its sales are coming at the expense of the company's other razors.
Gillette is off 13% this year.
In the tech sector, some issues took flight after management presentations at
CS First Boston's conference in Scottsdale, Arizona. In what one investor
called a "love-fest," top executives from the likes of Cisco, Lucent and
Northern Telecom told an appreciative crowd of institutional investors that
fourth-quarter profits appear to be on track and that 1999 is looking stronger
than it did just a few months ago.
Compaq Computer was a standout in the group, gaining 4 5/8 to a record
close of 38 11/16 Friday amid optimism about its PC sales in 1999, increased
confidence about current-quarter profits and hopes the company will spin off
its AltaVista Internet search engine, which could be worth $1 billion.
Compaq's fans say that even with its runup, the stock still trades at just 22
times projected 1999 profits, while rival Dell Computer fetches almost 50
times expected 1999 earnings. While Compaq rose, rival Gateway 2000 fell
10 5/16 to 51 5/16 amid concern that its fourth-quarter revenues will fall short
of expectations. This suggests the situation in the PC industry may not be as
robust as Compaq's fans believe.
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