To: kemble s. matter who wrote (140840 ) 8/28/1999 11:52:00 AM From: Howard Cragg Read Replies (2) | Respond to
Kemble I ran out of space on the previous message....
"What if you had used conventional measures such as price-earnings ratios as your main selection criteria? You might have bet on Gateway, which carried a 30 P-E. Compaq was a bit more "expensive" at 32. Dell, with a P-E of 35, may have been flat-out avoided.
Another mistake would have been to pick the cheapest stock at the time. In early February 1998, Compaq went for around $30 a share, Gateway at $40 and Dell at $100. Sure, with a $5,000 investment, you could buy 116 more shares of Compaq than of Dell, but that's irrelevant. You would have lost the chance at superior gains.
From the beginning of February 1998 to the following February, Dell advanced 320%, Compaq wallowed around before moving up 57%, while Gateway doubled.
Hindsight tells us that distribution problems at Compaq resulted in a huge inventory glut at the world's largest PC maker in the first half of 1998. Compaq's per-share earnings shrank from year-ago levels in the first, second, and third quarters of last year. Dell proved to be nimbler as it assembles its product only once an order is received. Dell's direct-order approach is now being copied by its rivals.
But you didn't have to know that at the time. What was apparant was Dell's strength, not only in its financial statements, but also its stock performance. By almost any measure, Dell was clearly the dominant stock in the PC field. As the market shows year after year, it pays to follow the leader."
Investors Business Daily 8/27/99
Kemble, IBS is a good paper. I'm not pumping the paper just the contents of the article.
