To: kemble s. matter who wrote (140839 ) 8/28/1999 11:30:00 AM From: Howard Cragg Respond to
Hello Kemble, I thought you might be interested in an article from yesterday's Investor Business Daily page 1, Investors Corner.
" FOLLOW THE LEADER IN A LEADING GROUP- The workplace of the 1990's depends on computers. So has the decade's great bull market.
In the past 9 1/2 years, IBD's Computer-Manufactures industry group of 22 stocks has charged ahead more than 1000%.
But a strong group is just one element in the search for the very best stocks. You want to find the leader in that leading group. And when it comes to PC makers the winner is clear. Dell Computer.
The performance numbers are almost too big to comprehend. Since the beginning of the decade, the direct PC seller's stock has rocketed 80,000%. The shares, on a split-adjusted basis, were worth a little more than a nickel back then. They're now trading near 48.
The price for making the wrong pick? Apple Computer hasn't even doubled during the decade. Micron Electronics is up 150%. Compaq Computer and Gateway have turned in respectable gains of 780% and 890%, but those look puny compared with Dell's five diget advance.
Dell's ascent hasn't been a straight shot. Months of strong gains have been followed by corrections and consolidations before the stock would break out once again. The result? Investors have had many chances to climb aboard one of the decade's premier stocks.
Consider early 1998. Dell was emerging from a 3 1/2 month base that had taken the stock down 33% from its previous high. As the market recovered from the fall's steep correction- a perfect time to search for fresh buys- Dell was ready to resume its advance. How did it compare to its closest rivals, Gateway and Compaq?
One way to gauge the three computer makers was by their Earnings Per Share ratings, found daily in the NYSE and Nasdaq stock tables. The ratings go from 1 to 99, with 99 being the best. IBD's research has found that winning stocks have superior earnings before they make a big move. Dell was no exception.
At the time, Dell's EPS was top-notch at 99. Compaq was right up there with a 95 EPS, while Gateway trailed at 51. How fast do earnings grow in a 99 EPS stock? Dell's profits had surged 160%, 180%, 114%, and 70% from year earlier levels in the four quarters prior to its outstanding run of 1998.
Another important variable to check was the stock's Relative Price Strength ratings.
The RS ratings also go from 1 to 99 and compare a stock's price performance with all other stocks over the past 12 months. Relative Strength is key because most best-performing stocks are already leaders before they begin to make a major move. When Dell emerged from its base in February 1998, its Relative Strength rating came in at 97. Even though Dell hadn't made a new high in 3 1/2 months, the stock held up better than almost all other issues while the market recovered from its 13% plunge in the previous October. That strength in the face of a weak market said a lot about Dell's potential once the broad averages started hitting new highs. Compaq's RS stood at 92 in October 1997 and then fell to 86 on Feb 2. The market correction left the biggest PC seller a little worse for wear. The decline meant that a growing number of other stocks were rising at a faster rate than Compaq. Meanwhile, Gateway's RS moved to 78 from 29, showing it was gaining strength but didn't measure up to Dell.
