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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: Jay Mowery who wrote (25)	3/3/1998 3:49:00 PM
From: porcupine --''''>	Read Replies (1) \| Respond to of 1722

Axel's "Socially Conscious" Value Portfolios: 2/27/98 Update. Here's the scorecard through the end of February: S&P 500 8.10% APG20 8.25% pick 4 11.60% +1 port. 10.71% +2 port. 12.17% Value Line has been revising estimates mostly downwards (this is impression I get from updating database, may not be strictly accurate) and yet the market rises. VL of course may be very wrong, but I haven't heard or read anybody yelling how the business outlook is improving. Right now the quantitative end of stock picking is making things look difficult. Following the method described at: web.idirect.com results in only 9 companies qualifying for the "+1 portfolio" which is the easiest portfolio to make. Those nine are: Polaroid (PRD) Apogee Enterprises (APOG) Armstrong World Industries (ACK) Avnet (AVT) Silicon Graphics (SGI) Stratus Computer (SRA) Case (CSE) Deere (DE) Reebok (RBK) The 150+ industrial companies that make up the universe from which these were taken can only be seen as more richly valued than at the beginning of the year. At the beginning of the year the 1998 projected cash earnings yield (PCEY) was 4.74%; now it is down to 4.10%. The four year PCEY was 5.86% at the beginning of the year; now it is at 5.23%. If we assume the VL estimates to be accurate for the next four years, and if we further assume that the composite growth of cash earnings thereafter will be 6.4% (in line with the overall, long running average) then the average stock in this mini-universe is overpriced by 22.1%. If we eliminate the companies which really look terrible, the average of the remaining companies is a 10.7% over-valuation. [The four companies which so drastically affected the overall averages were Wellman (WLM), Advanced Micro Devices (AMD), Air Products and Chemicals (APD), and America Online (AOL).] Something which I think bears mentioning, especially since nobody else seems to explicitly state it, is what it means for a market or a stock to be over-valued. Simply put, it means that the projected return of that market or stock is less than the required return (or discount rate). Axel