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Strategies & Market Trends : Keep Your Eye On The Ball - Watch List -- Ignore unavailable to you. Want to Upgrade?

To: agent99 who wrote (67)	9/13/1998 10:28:00 PM
From: TFF	Read Replies (1) \| Respond to of 2802

INPLAY Sectors - Internets(usuals),Technology(DELL,INTC,ORCL), Oils(CDG,SLB), Golds(NEM, PDG), Financials(CCI, MER), Emerging MKts(TBR,TEF)

To: agent99 who wrote (67)	9/17/1998 7:57:00 PM
From: TFF	Read Replies (1) \| Respond to of 2802

The Tide Has Turned: forbes.com By David Dreman I'VE BEEN A BULL since I started writing this column in 1980, but I think the tide has finally run out. We have seen a bubble in Internet and other concept stocks as inane as tulipomania. This is not just a correction. We have had a complete disconnect between the prices of stocks and their values. Earnings for America Online, for example, would have to grow 50,000% in the next 15 years to justify its recent price. The prognosticators have concentrated on current strong economic conditions, neglecting the relationship between prices and underlying value. Profits could not conceivably advance fast enough to validate recent valuations. The Russian and Asian crises are for real and cannot be mended merely with loans from the IMF or advice from Washington. If nothing else should give you pause, the weird rationalizations put forward by the bulls should. Numerous experts stated that the valuation standards used successfully for generations no longer apply. To justify current prices, new ones must be found. Some call it a "new paradigm." Like a kid playing with bubblegum, the bulls have stretched their definitions of value to the breaking point. It did not seem to bother them that Amazon.com, which will continue to lose money for at least two more years, traded at 19 times revenues and over 60 times optimistic earnings estimates for the year 2001. Finally, there was warning of trouble to come in the fact that the major gains were made by a handful of giant stocks such as Microsoft, Dell Computer, WorldCom and Yahoo!, all trading at towering P/Es, while the average stock was down 30% from its 12-month high. Twenty giant technology companies on the Nasdaq contributed almost double the index's 9% recent year-to-date gain, while the other 4,400 companies produced an 8% loss. The last time a dichotomy of this magnitude occurred was in 1973-74, which was followed by the worst bear market of the postwar period. -------------------------------------------------------------------------------- We have had a complete disconnect between the prices of stocks and their values. -------------------------------------------------------------------------------- Ninety percent of the investment public and their advisers have never experienced a bear market. Buying the dips is considered a surefire way to get in cheaply. They forget that it is also a sure way of throwing good money after bad in a descending market. We are in a bear market at best, and if we are not lucky it may be a crash. Yes, there may be rallies-but be careful: Your first objective now should be to preserve your capital. In a tax-free account, an IRA or a 401(k), get defensive now by tossing out your most speculative stocks. Yes, I mean America Online or Yahoo! You may have made money in them but don't be sentimental. As fast as they went up, they can descend even faster. Shift a substantial portion of your portfolio to value stocks, which should provide better protection in a bear market. The taxable investor should follow a similar course, if the tax bite is not prohibitive. I am not a market-timer. I do not recommend going to cash. Here are the kinds of stocks I would buy after the smoke clears: Banks: First Chicago NBD (65, FCN), a large regional bank, is down 36%. It provides value at a P/E of 12 and a 2.7% yield. PNC Bank Corp. (43, PNC) is another major regional that has been knocked down sharply. The stock trades at a P/E of 12 and yields 3.6%. Oil service companies: They have been in a bear market for some time, with prices down to one-half or two-thirds of their 12-month highs. Two that appear cheap: Diamond Offshore Drilling (21, DO) is off 70% from its 12-month high. Yet earnings could increase 30% this year and a further 15% in 1999. The stock trades at a P/E of 8 and yields 2.4%. Transocean Offshore (24, RIG) is a major deep-water driller. Earnings could double in 1998 with a further 20% gain next year. It trades at 10 times trailing earnings, yielding 0.5%. Health care: Humana (13, HUM) has dropped 50%. HUM presents good value with 18% growth and a P/E of 11. David Dreman is chariman of Dreman Value Management of Jersey City, N. J. His latest book is Contrarian Investment Strategies: The Next Generation.