DJIA 8898.96 -18.68 (-0.21%) S&P 500 1085.12 -1.42 (-0.13%) Nasdaq 1831.76 +11.45 (+0.63%) Value Line ndx 963.49 +5.15 (+0.54%) 30-Year Bond 100 26/32 -5/32 6.06% Yield
Minnesota Mining & Manufacturing <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MMM)") else Response.Write("(NYSE: MMM)") end if %>, better known as 3M, gained $2 5/16 to $92 1/2 after reporting first quarter earnings of $0.98 per share, a penny higher than in Q1 1997 and meeting analysts' expectations. While the strong U.S. dollar and economic downturn in Asia adversely impacted earnings, cost controls worldwide and international growth boosted them. Fluctuations in exchange rates reduced sales by about 5% and cut EPS by about $0.10, or 10%. Despite the downturn in Asia, international sales in local currencies increased at a double-digit rate, paced by double-digit volume growth in Europe and Latin America.
Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> jumped $13 to $95 3/4 after reporting a lower-than-expected first quarter loss of $0.40 per share compared with a loss of $0.16 for the year-earlier period, beating the analysts' mean estimate of a loss of $0.46 per share. Sales increased 446% year-on-year and 32% from the fourth quarter to $87.4 million. Cumulative customer accounts grew 50% from the end of December to 2.26 million, going from 1 million to 2 million customers in less than six months. The online bookseller also announced it has acquired three Internet companies, incurring a $55 million charge. Two are European online bookstores, Bookpages Ltd. of the U.K. and Telebook Inc. of Germany, and the third is Internet Movie Database Ltd. (www.imdb.com), which Amazon hopes will support its eventual entry into selling videos online. For the time being, it will be business as usual -- no site or name changes yet. Bookpages (www.bookpages.co.uk) will continue selling "all 1.2 million U.K. books in print," and though it has already added "An Amazon.com company" to its main page, Telebook (www.telebuch.de) will keep peddling the more than 1 million titles (400,000 in German) in its catalog. Amazon also announced a 2-for-1 stock split.
QUICK TAKES: Internet-related companies rebounded today on the back of Amazon.com's better-than-expected first quarter earnings. Content aggregator and online commerce giant America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> regained $2 1/2 to $75 3/8; Excite Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XCIT)") else Response.Write("(Nasdaq: XCIT)") end if %> shot up $8 21/32 to $66 15/32; Infoseek Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEEK)") else Response.Write("(Nasdaq: SEEK)") end if %> jumped $2 5/8 to $33; Yahoo! Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %> added $6 3/8 to $118 1/2; and Lycos Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %> leapt $9 3/16 to $58 3/8... Synopsys Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SNPS)") else Response.Write("(Nasdaq: SNPS)") end if %> surged $5 3/8 to $41 after reporting Q2 EPS of $0.50 (before charges), up from $0.35 for the prior-year period and better than the mean analysts' estimate of $0.49 reported by Zacks. Goldman Sachs added the electronic design automation solutions provider to its "recommended list," while BT Alex. Brown raised its rating on the company to "buy" from "market perform."
Cendant <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CD)") else Response.Write("(NYSE: CD)") end if %> gained $1 1/16 to $24 3/8 after announcing in a letter to shareholders that it expects to meet or exceed current Wall Street consensus estimates when the consumer services conglomerate reports first quarter earnings on May 5. The company also announced it has completed its $1.34 billion cash purchase of National Parking Corp... Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> picked up $1 3/4 to $76 1/16 after the number-one PC direct marketer announced it has teamed up with Pentium-chip maker Intel <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> to develop enterprise and Internet computing technologies. Yesterday, Dell CFO Thomas Meredith said the company expects industrywide PC shipments to grow 14% to 20%... Computer chip design software maker Aspec Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASPC)") else Response.Write("(Nasdaq: ASPC)") end if %> rose $1 to $14 from an initial public offering price of $13 a share.
Several financial services stocks recovered today after The Washington Post reported that Federal Reserve Board sources said that while the central bank is leaning toward higher short-term interest rates, that doesn't necessarily mean higher rates any time soon. Fed Funds futures trading in Chicago is saying something different, though, as money markets traders are taking yesterday's leak as a serious signal from the Fed. Donaldson, Lufkin & Jenrette <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DLJ)") else Response.Write("(NYSE: DLJ)") end if %> tacked on $2 1/4 to $93 3/4 and First Chicago NBD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FCN)") else Response.Write("(NYSE: FCN)") end if %> gained $1 1/4 to $90 1/4. Mellon Bank <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MEL)") else Response.Write("(NYSE: MEL)") end if %> was lifted $2 1/16 to $73 after Bank of New York <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BK)") else Response.Write("(NYSE: BK)") end if %> issued a response to Mellon's rebuff of its proposed merger deal, saying it is confident that the "overwhelming support from Mellon's shareholders" will continue to gain momentum.
Telecommunications equipment manufacturer Able Telecom <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ABTE)") else Response.Write("(Nasdaq: ABTE)") end if %> rang up another $2 7/8 to $11 15/16 after yesterday announcing that it will buy WorldCom's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WCOM)") else Response.Write("(Nasdaq: WCOM)") end if %> MFS Network Technologies Inc. for an undisclosed amount. The combined revenues of the two companies are projected to exceed $450 million for this year... Online music and entertainment company N2K Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NTKI)") else Response.Write("(Nasdaq: NTKI)") end if %> jumped $1 15/16 to $24 15/16 after announcing that its subsidiary, Music Boulevard Network, has entered into an exclusive two-year music retailing and marketing agreement valued at $12 million with Ticketmaster Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TKTM)") else Response.Write("(Nasdaq: TKTM)") end if %>... Printing industry consolidator and maker of envelopes and business documents Mail-Well Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MWL)") else Response.Write("(NYSE: MWL)") end if %> stamped on $3 to $45 after announcing it will acquire privately held Anderson Lithograph.
Software systems provider Mobius Management Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MOBI)") else Response.Write("(Nasdaq: MOBI)") end if %> gained $3 3/4 to $18 1/4 from an initial public offering price of $14.50... Collision repair, engine rebuilding, and fluid power equipment maker Hein-Werner <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: HNW)") else Response.Write("(AMEX: HNW)") end if %> surged $4 1/8 to $12 3/8 after announcing it has agreed to be acquired by tools and equipment company Snap-On Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SNA)") else Response.Write("(NYSE: SNA)") end if %> for $12.60 a share in cash, or about $36 million... Tribune Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRB)") else Response.Write("(NYSE: TRB)") end if %> added $2 1/8 to $65 1/4 after Goldman Sachs raised the media company to its "priority list" from the "recommend list" with a 12-month target price of $77 a share... Telemarketing travel company 800 Travel Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IFLY)") else Response.Write("(Nasdaq: IFLY)") end if %> jumped $1 27/32 to $8 27/32 after Stock Investor Trading News (http://www.sitn.com) initiated coverage of the company with a "strong buy'' rating, citing that 800 Travel will be well-positioned to capture a significant portion of the rapidly growing online travel services industry. The company is developing a new Internet travel reservation system slated to be online by year's end. Sitn.com recently also started K-tel with a "strong buy" rating.
Earnings Movers
Aflac Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AFL)") else Response.Write("(NYSE: AFL)") end if %> up $1 5/8 to $60 15/16; Q1 EPS: $0.75 (before unusual items) vs. $0.64 last year; Estimate: $0.74
Airborne Freight <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABF)") else Response.Write("(NYSE: ABF)") end if %> up $1/16 to $40; Q1 EPS: $0.63 vs. $0.31 last year; Estimate: $0.49
Capital Re Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KRE)") else Response.Write("(NYSE: KRE)") end if %> up $2 1/16 to $72 1/16; Q1 EPS: $1.15 vs. $0.96 last year; Estimate: $1.13
Hartford Financial Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HIG)") else Response.Write("(NYSE: HIG)") end if %> up $2 1/16 to $107 7/8; Q1 EPS: $1.68 (before unusual items) vs. $1.50 last year; Estimate: $1.66
Wild Oats Markets <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OATS)") else Response.Write("(Nasdaq: OATS)") end if %> up $1 5/8 to $30 13/16; Q1 EPS: $0.20 vs. $0.15 last year; Estimate: $0.19
Sykes Enterprises <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SYKE)") else Response.Write("(Nasdaq: SYKE)") end if %> up $1 5/8 to $20 15/16; Q1 EPS: $0.16 (before charges) vs. $0.13 last year; Estimate: $0.16
Telegroup Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TGRP)") else Response.Write("(Nasdaq: TGRP)") end if %> fell $5 1/4 to $14 3/4 today after expressing caution about its financial results for the balance of 1998. The company expects fiscal Q1 revenues to come in at around $85.3 million, 2% below current estimates. Telegroup is aiming to be the low-cost international carrier for digital voice, data, and video communications for businesses, and while the firm maintains that the plain-vanilla voice segment will still play a "significant" role in its strategy, the real potential for growth lies in its growing global asynchronous transfer mode (ATM) network, which can handle high-speed data and video transmission. Alas, the rapid expansion of the ATM network is taking the blame for the expected shortfall, as the company bumps up against capacity constraints in the Netherlands and experiences integration problems with its new operations in Australia.
QUICK CUTS: Corporate lender and asset manager Bank of New York Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BK)") else Response.Write("(NYSE: BK)") end if %> fell $1 1/2 to $57 3/8 after the board of Mellon Bank <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MEL)") else Response.Write("(NYSE: MEL)") end if %> turned up its nose to a $24 billion merger offer from BONY last weekend... Skin care and fragrance products maker Estee Lauder Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EL)") else Response.Write("(NYSE: EL)") end if %> dropped $2 1/4 to $66 7/8 after reporting Q3 EPS of $0.33, which was in line with the Street estimate... Soft drink company PepsiCo Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PEP)") else Response.Write("(NYSE: PEP)") end if %> slid $3 5/16 to $39 3/4 after reporting Q1 EPS from continuing operations of $0.24, which was a penny ahead of the First Call mean estimate. Worldwide beverage sales were flat compared to a year ago and North American volume measured by bottler case sales slowed "significantly" in March, the company said.
Specialty paper products manufacturer FiberMark Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FMK)") else Response.Write("(NYSE: FMK)") end if %> slipped $1 7/16 to $21 9/16 after reporting Q1 EPS of $0.54, in line with expectations. However, the company said orders in some markets have softened in Q2... Petrochemicals firm Lyondell Petrochemical Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LYO)") else Response.Write("(NYSE: LYO)") end if %> lost $1 5/8 to $32 1/2 after Schroder & Co. downgraded the company to "outperform" from "outperform significantly"... Financial and economic information aggregator and disseminator Primark Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PMK)") else Response.Write("(NYSE: PMK)") end if %> slumped $5 5/16 to $37 1/16 after the company said it is continuing its previously announced review of strategic alternatives "for a longer period of time"... Dun Computer Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DNCC)") else Response.Write("(Nasdaq: DNCC)") end if %> fell $7/8 to $8 9/16. The manufacturer of custom computer systems sold 3.25 million shares in a public offering at $8 1/2 per share.
3D graphics accelerator chip maker 3Dfx Interactive <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TDFX)") else Response.Write("(Nasdaq: TDFX)") end if %> slipped $1 1/2 to $25 1/4. Today, the company said it renewed its strategic alliance with Activision <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATVI)") else Response.Write("(Nasdaq: ATVI)") end if %> to develop 3D games using 3Dfx's Voodoo2 chipset... Applied Science and Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASTX)") else Response.Write("(Nasdaq: ASTX)") end if %>, which makes plasma sources and subsystems and specialty power sources for manufacturing semiconductors, lost $1 3/8 to $14 after saying it expects a 50% sequential drop in Q4 earnings on a 5% to 10% sequential decline in revenues as its customers reduce inventory... A few homebuilders were dragged lower on lingering fears that the Federal Reserve may be on the verge of increasing short-term interest rates. Lennar Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LEN)") else Response.Write("(NYSE: LEN)") end if %> fell $2 1/16 to $26 15/16 and Pulte Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PHM)") else Response.Write("(NYSE: PHM)") end if %> dropped $1 1/8 to $49 1/4. Centex Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CTX)") else Response.Write("(NYSE: CTX)") end if %> lost $1 5/16 to $34 3/8 despite reporting Q4 EPS of $0.71, which was a dime more than the First Call mean estimate.
Railroad freight car and heavy duty truck parts manufacturer Johnstown America Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JAII)") else Response.Write("(Nasdaq: JAII)") end if %> slid $1 3/16 to $16 9/16 after 200 workers supported by the United Auto Workers went on strike at the plant of its Gunite Corp. truck components subsidiary... Department store retailer Bon-Ton Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BONT)") else Response.Write("(Nasdaq: BONT)") end if %> slipped $3/4 to $15 1/2 as the company sold a total of 4 million shares in a public offering at $15 per share... PhyCor Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PHYC)") else Response.Write("(Nasdaq: PHYC)") end if %> sank $1 1/16 to $21 3/16 after BT Alex. Brown downgraded the operator of medical clinics to "buy" from "strong buy." Wasserstein Perella also lowered its rating to "hold" from "buy."
Zitel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZITL)") else Response.Write("(Nasdaq: ZITL)") end if %>, which develops memory algorithms and search technology for relational databases and Year 2000 services, fell $2 13/32 to $8 13/32 after reporting a Q2 loss of $0.33 per share versus a loss of $0.13 per share a year ago. The company said it has hired an investment bank to help sell its storage business unit... Financial management and trading software developer BARRA Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BARZ)") else Response.Write("(Nasdaq: BARZ)") end if %> dropped $2 1/8 to $23 3/8 after reporting Q4 EPS of $0.33, which was in line with the Street estimate.
Computer disk drive maker Western Digital Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WDC)") else Response.Write("(NYSE: WDC)") end if %> slid $2 to $19 1/4 after reporting a Q3 loss of $0.51 per share versus earnings of $0.88 per share a year ago, which was at the low end of the estimates of analysts surveyed by First Call and $0.06 below the mean projection.
FOOL
ON THE HILL
An Investment Opinion
by
Dale Wettlaufer
Big Ben Joins Index
Franklin Resources <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEN)") else Response.Write("(NYSE: BEN)") end if %> gained $4 1/2 to $53 3/8 today after Standard & Poor's announced that the asset management giant will join the venerable S&P 500 Index. Franklin will replace CoreStates Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CFL)") else Response.Write("(NYSE: CFL)") end if %>, which is merging with First Union Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FTU)") else Response.Write("(NYSE: FTU)") end if %>. The switch out of CoreStates and the replacement with Franklin, which also runs the Templeton Mutual Funds and the Mutual Series funds headlined by publicity-shrouded fund manager Michael Price, points to a very interesting development in equity market indexes in the 1990s. The list of what has come out of the S&P benchmark index and what has gone in answers a question we addressed a few weeks ago when we took exception to a Fortune article on market valuation.
The gist of that article was that the market is wildly overvalued on such (not so) useful measures as price-to-book. The article also went on to demonstrate with a chart that the market was fairly valued on a price-to-sales basis until about (I say about because the chart parameters were very poorly graphed and not even defined in the text) 1995 when the indicator went totally vertical. The market was also fairly valued on a price-to-cash flow basis until about 1990, with an intervening period of overvaluation and a return to normalcy until about 1994, when that metric also went hyperbolic. Similarly, price-to-earnings goes into the stratosphere in about 1993.
With the switch out of CoreStates and the inclusion of Franklin Resources, one can't help but think of the differences between those two companies. CoreStates is a highly capital intensive company with a very high assets-to-equity ratio while Franklin is a very light, free cash flow monster that is not anywhere near as capital intensive as a big Northeast bank. People thought CoreStates was pricey at five times book value, but today it is being replaced by a company with a price/book ratio of 7.3 and a price/sales (or revenues) ratio of 6.25, more than 50% greater than the typical large bank.
I think you get the drift of where I'm going with this one. If not, the thesis is that the most dynamic companies in the indices are replacing old-line sorts of companies that are 1) heavier on capital, which leaves less enterprise value in the hands of common equity holders and more in the hands of debt holders; 2) don't generate the sort of free cash flow (or ANY free cash flow) that these newer index members do; 3) are slower growers on the revenues line; 4) do not generate the margins and capital efficiency of the new members, thus meriting lower valuation multiples; and 5) do not rely on intellectual capital, which is not tangible by the constricts of Generally Accepted Accounting Principles (GAAP).
Going back to 1993, let's see if we can find any older companies being replaced by newer companies that fulfill these parameters.
12/31/93 Cisco Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %> replaces Travelers
Can I end the article here? I could! This is probably the best example of my thesis. Cisco spots torrid top-line growth, huge profit margins, much more rapid capital turnover than a big insurance company, and it's a gigantic shareholder return company. In all, successful datacom companies deserve, hands down and without dispute from graphs and history, higher valuation multiples than almost any insurance underwriter on earth.
3/11/94 Unum <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UNM)") else Response.Write("(NYSE: UNM)") end if %> replaces Ethyl Corp.
As heavy as an insurance underwriter can be on capital, chemical companies can be even heavier, though as a specialty chemical company, Ethyl is no commodity producer. Almost a wash here.
4/06/94 Airtouch Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ATI)") else Response.Write("(NYSE: ATI)") end if %> replaces Fedders Corp. (NYSE; FJC)
Wonder what that did for the price/sales and price/earnings ratio of the index? Hmm, where's the growth in 1994? In wireless telecom or in air conditioners and dehumidifiers?
6/7/94 Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> replaces Syntex
What's Syntex again? Ah, a pharmaceuticals company. OK, I grant you successful pharmaceuticals companies don't merit a price/sales multiple of 1 and a price/book ratio of 2, but we're talking about Microsoft entering the S&P 500. This is a watershed event. Was the world wrong to bid up Microsoft to the highest price/sales and price/book ratio in the index at that time? NO! One could have bid up the stock to multiples three times their then current value and still beaten the market six ways to Sunday -- with a side salad over the ensuing four years.
I realize that it's fashionable to say the market is not efficient, but it's not THAT inefficient. With the inclusion of Microsoft into the S&P 500, that increased the aggregate valuation multiples on the index right off the bat. As Microsoft grew to a market cap nearing $200 billion, it became a huge component of the market-cap weighted index and naturally, then, brought along valuation multiples up with it.
1/18/95 Silicon Graphics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SGI)") else Response.Write("(NYSE: SGI)") end if %> replaces Transco Energy
Remember when Silicon Graphics was hot? Hmm, I would think this would do something to the market multiple. Let's see, hot servers and software or an energy pipeline company? Can we say secular change in the index?
3/16/95 Applied Materials <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMAT)") else Response.Write("(Nasdaq: AMAT)") end if %> replaces Santa Fe Pacific
OK, silicon wafer etching and deposition equipment or class 1 railroad? Which deserves the higher multiple? Ding! Applied Materials.
4/01/96 WorldCom <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WCOM)") else Response.Write("(Nasdaq: WCOM)") end if %> replaces Chase Manhattan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMB)") else Response.Write("(NYSE: CMB)") end if %>, but in effect takes Chemical Bank's spot.
Wonder what this did to the cash flow, price/sales, and price/earnings multiple of the S&P 500. I won't leave you hanging. It raised each of those.
9/06/96 Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> replaces Varity Corp.
PCs and servers or auto parts? I'm from Buffalo, U.S. headquarters for Varity, but love isn't blind. I think Dell deserves the higher multiple unless Varity's putting quad Pentium II's in its muffler systems.
OK, one could go on with these things. It's not a selective list. Time after time in this decade, excellent, higher growth cash machines that have less to do with book value multiples and low price/sales multiples are entering the S&P 500. No wonder Fortune's charts look like hockey sticks. I don't say this because I've lost it on valuation. I'm pretty much a value guy, but I'm not stuck in the mode of thinking that one shouldn't pay more than two times revenues when some of the sweet companies around are growing the top line at 50% to 100% per year while generating return on invested capital of 50% to 200%. I'm not crazy to pay 40 times for that, so please don't send me email.
Next time you see a popular business magazine telling you you're crazy -- or outright telling you to sell -- take it with a grain of salt and look beyond the aggregate numbers they trot out. Follow the money and think like a smart acquirer, not some market-timing moron who takes advice from reporters who only buy mutual funds.
Please see the Motley Fool's Conference Calls page for call information and links to synopses.
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