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Technology Stocks : Safeguard Scientifics SFE -- Ignore unavailable to you. Want to Upgrade?

To: John Arnopp who wrote (1410)	5/22/1998 12:15:00 PM
From: John Arnopp	Read Replies (1) \| Respond to of 4467

SFE Valuation and the Capital Asset Pricing Model (CAPM) (continued from my last post) First, I apologize if this sounds like "Investing 101" but it couldn't hurt to remind ourselves of the expectation of being rewarded in line with the risk we are taking. I'm using the following assumptions: 1) Data as of May 21, 1998. 2) Published beta for Safeguard is 1.37. 3) Risk free return (RFR) is 6.0%. 4) S&P 500 is proxy for Market Return 5) Not factoring in any adjustment for rights offerings, ie, completely ignoring rights (or discrepancies would be even higher) So, using Calc. Rtn. = RFR+beta*(Mkt. Rtn.-RFR), we get: S&P500 SFE % (CAPM) price (CAPM) YTD% 14.86 40.03 18.14 $36.24 1-year 33.38 74.02 43.51 $37.07 So, we could conclude that the market is valuing SFE at greater than the risk premium (that the stock is OVER-valued). Interestingly, the calculated fair price, based on applying the calculated returns to the prices of SFE one year ago ($25.25) and on 12-31-97 ($31.38), correspond pretty closely with current NAV. Good investing, --John