Steven,
Hi!!!
Are guys like this held accountable anymore? Didn't he used to preach doom and gloom on CNBC?? Check out his comments about Dell...is he ignorant of what they are doing or do we read the wrong thread... :o)
Here Are Some Stocks to Take Your Profits In: John Dorfman
Boston, Dec. 31 (Bloomberg) -- It's time to take a few chips off the table.
After eight straight years of stock-market gains, you probably have more of your net worth in stocks than you normally do. The stock market is back to its peak levels of July. Perhaps 1999 will be yet another good year. But if you rode the Internet- stock craze, if you have some stocks that doubled or better in 1998, or if your asset allocation is now top-heavy with stocks, you should consider doing some selling in January.
You will probably be selling into a rally, because inflows from 401(k) and pension plans usually make January a strong month for the market. And if you sell in January, you won't have to pay the capital gains taxes until April 2000.
Here are 10 well-known stocks that rose substantially in 1998 and are richly valued. In my opinion, they're overvalued. The stocks are listed in alphabetical order. I left out Amazon.com Inc., possibly the most overvalued stock in the market, because I already had my say about it a week or so ago.
If you own any of these, consider selling part or all of your position in early 1999. If you're hesitant, you might at least sell enough stock to take out your ''basis,'' the amount you originally invested. From that point on, at least you'll be playing with the house's money.
Abercrombie
Abercrombie & Fitch. A clothing retailer based in Reynoldsburg, Ohio, Abercrombie & Fitch Co. is a new corporation under an old name. The original Abercrombie bit the dust. This company bought rights to the name and went public in 1996. Analysts think earnings will grow 30 percent a year. If the company really sustains such a fast pace, quality control may suffer. The stock sells for 47 times earnings and 31 times book value, or corporate net worth.
America Online. For millions of people, America Online Inc. was an introduction to the world of computers, and now has become their gateway to the Internet. In the past three years, AOL's book value has grown 86 percent. Very nice. At the same time, the stock has appreciated 16-fold. Great news if you've been a shareholder, but the two figures are wildly disproportionate. The stock, at more than 600 times earnings, 52 times book value and 23 times sales, is due for a tumble.
Descend
Ascend Communications. One thing stockholders in Ascend Communications Inc. have had is an exciting ride. The stock rose above $70 in 1996, slid to below $30 early in 1998, and then zoomed to about $66 by year-end. The Alameda, California, company makes computer-networking equipment used by (among others) Internet service providers. But this stock can be a banana peel. When the company suffered a loss in 1997, people started calling it ''Descend Communications.'' The price/earnings ratio is 57.
Cisco Systems. Everybody respects Cisco Systems Inc., the leading provider of computer-networking Equipment. The Bloomberg database shows 38 ''buy'' opinions among 43 analysts who follow the stock. But when you're at the peak, you're also on the verge. Cisco sells for 70 times earnings, 19 times book value and 17 times sales -- valuations that leave scant room for it to slip in any way. With the stock up from about $17 to $93 in the past three years, it might be prudent to take some profits.
Dell Computer. In the past three fiscal years, Dell Computer Corp.'s book value has doubled. But in the past three calendar years, its stock has shot up 34-fold. While the Round Rock, Texas, company is doing very well selling personal computers right now, leadership in this market tends to rotate among the major players. I wouldn't be surprised if Compaq Computer Corp. or Hewlett-Packard Co. threw Dell a rough elbow in the next year or two. Also, Asian manufacturers have a price advantage now because their currencies are cheap.
Gap
Gap. It's probably fair to say that the clothing retailing business is mature, cyclical and subject to fads. Gap Inc. has just had a very good year. Earnings were up 109 percent in the second quarter ended in August and 50 percent in the third quarter ended in November. The stock price is up 139 percent from a year ago. No offense to Gap, which I consider well managed, but this isn't likely to happen every year. The P/E is 45 and analysts estimate the long-term growth rate at 19 percent.
Lucent Technologies. I've been puzzled but pleased by the big rise in Lucent Technologies Inc. (My wife owns shares.) The Murray Hill, New Jersey, company makes communications equipment and owns Bell Laboratories. It is respected for its technology, and most analysts like the stock. But the share price is now 144 times recent earnings and 52 times estimated earnings for fiscal 1999. That's a lot to pay, even for the 20 percent growth analysts are expecting. I'm encouraging my wife to sell some shares and I think other prudent investors should do the same.
Microsoft
Microsoft. How can I criticize a deity? Had you put $10,000 into Microsoft Corp. stock back in 1986 at a (split-adjusted) price of 40 cents a share, you'd have $3.5 million now. However, the old saying is true: Trees don't grow to the sky. Microsoft shares are selling for 62 times recent earnings, 19 times book value and 23 times sales. If anything makes the Microsoft juggernaut stumble (the government's antitrust suit perhaps?), this high-priced stock has a long way to fall.
Novell. Next to Cisco, Novell Inc. is the most powerful company in the computer-networking business. Unlike most of the stocks I'm mentioning here, Novell is a long way from its all- time high. The stock got to $35 in 1993, fell back below $7 in mid-1997, and trades at about $18 now. But valuations are high. The shares fetch 62 times recent earnings and 40 times estimated fiscal 1999 earnings. The fiscal year ends in October. The stock is up 140 percent in the past year, and the networking market competition is tough.
Time Warner. As of Sept. 30, Time Warner Inc.'s liabilities totaled about $20.0 billion and shareholder equity was $11.6 billion. Reported earnings for the magazine, cable and movie giant have been negative for all five years from 1993 through 1997, and earnings for the past four quarters total a penny. All that being the case, it seems appropriate to take some chips off the table when the stock has doubled in the past 12 months.
14:03:25 12/31/1998
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