Friday, December 05, 1997


The Daily Dow
by Robert Sheard

LEXINGTON, KY. (Dec. 5, 1997) -- It was anything but a Kodak moment today in Rochester, New York.

In what Eastman Kodak <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EK)") else Response.Write("(NYSE: EK)") end if %> is calling a complete defeat for American export trade, the World Trade Organization handed down a long-awaited preliminary finding in Kodak's bitter dispute with Japan's major film company, Fuji Photo Film <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FUJIY)") else Response.Write("(Nasdaq: FUJIY)") end if %>. And it wasn't the news Kodak was hoping to hear.

Kodak has argued that Fuji and the Japanese government have conspired to keep Japan's market closed to Kodak and that Fuji has unfairly used this blocked access in Japan to facilitate its gain in market share here in the United States, using techniques that amount to a covert price war.

Kodak's real fear, now that the WTO has ruled against it, is that Fuji can launch an all-out price war here in the states and Kodak has no way of retaliating in Japan. Its photographic détente has been ruined.

The ruling also poses a bit of a dilemma for American policy makers. Since we helped create the WTO, if we were to effectively turn our back on its decision and impose trade sanctions on Japan directly, what credibility do we or the WTO keep for future findings with which we might agree?

Even more troubling is that this may well have been the best shot the U.S. had of getting a third party to intervene in America's attempt to open Japan's markets. In a September 17 letter to President Clinton, Newt Gingrich and Richard Gephardt labeled Kodak's complaint "one of the best-documented market-access cases ever brought against Japanese trade barriers." And yet it still got shot down.

Let's turn to more local issues. If you own Kodak stock as part of a Dow portfolio today, should you sell? (That's always the $64,000 question, isn't it?) My answer is, No. I don't know if the bad news is already fully in Kodak's stock or not, but I suspect a lot of it is already been taken out of "the picture" (sorry). And by selling now, you may be bailing at precisely the worst moment. Often stocks that drop abruptly on such stories are the subject of drastic over-reaction. And given that Kodak has already dropped more than 20% for the year, at some point the theory behind the Dow Dogs that these stocks are virtually unsinkable has to kick in.

So my view is stay the course. If Kodak doesn't turn around, take your medicine and move on, or hang on to it if it remains in the rankings and wait for the recovery -- just as AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> shareholders waited all year and are finally enjoying a recovery in their once downtrodden stock. This isn't my prediction on Kodak's future so much as my belief in sticking with your discipline to remove emotion from the investment decision. Hang in there and have a Foolish weekend!

TODAY'S NUMBERS
Stock  Change   Last
--------------------
T    -   9/16  57.44
GM   +1  3/4   63.25
CHV  +1  5/8   79.25
MMM  -   3/8   96.56

           
                  Day   Month    Year
        FOOL-4   +0.39%   1.45%  27.91%
        DJIA     +1.23%   4.17%  26.38%
        S&P 500  +1.10%   2.97%  32.81%
        NASDAQ   +1.27%   2.08%  26.56%

    Rec'd   #  Security     In At       Now    Change

   1/2/97  479 AT&T          41.75     57.44    37.57%
   1/2/97  153 Chevron       65.00     79.25    21.92%
   1/2/97  120 3M            83.00     96.56    16.34%
   1/2/97  179 Gen. Motor    55.75     63.25    13.45%


    Rec'd   #  Security     In At     Value    Change

   1/2/97  479 AT&T       19998.25  27512.56  $7514.31
   1/2/97  153 Chevron     9945.00  12125.25  $2180.25
   1/2/97  120 3M          9960.00  11587.50  $1627.50
   1/2/97  179 Gen. Motor  9979.25  11321.75  $1342.50


                             CASH   $1409.35
                            TOTAL  $63956.41