The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (May 9, 1997)

A lot of active investors believe the path to the biggest returns is through the small- and micro-cap stocks. But big is beautiful, baby.

I pulled the 15 biggest technology stocks out of the current S&P 500 and ran a quick test to see how they've done over the last three and five years, versus the S&P 500. Here's a run-down of the annualized returns for each:

Stock                       5-yr     3-yr
Intel (INTC)                65%     73%
Microsoft (MSFT)            43%     82%
IBM (IBM)                   12%     37%
Hewlett-Packard (HWP)       23%     39%
Cisco Systems (CSCO)        57%     62%
Lucent Technologies (LU)            68%*
Motorola (MOT)              23%      7%
Oracle (ORCL)               64%     38%
Compaq Computer (CPQ)       57%     29%
Computer Associates (CA)    52%     41%
Texas Instruments (TXN)     37%     31%
Seagate Tech (SEG)          40%     58%
Dell Computer (DELL)        65%    127%
Sun Microsystems (SUNW)     33%     76%
Applied Materials (AMAT)    58%     36%

Average                     45%     53%
S&P 500                     14%     21%

* One Year Only for Lucent Technology.

It's easy to dismiss these numbers in a couple of ways, but I think you would be making a hasty judgment. Yes, the last several years have been terrific, but you can extend the period farther back and catch even more of the meteoric rise of today's technology powerhouses.

And yes, to some degree these fifteen stocks are on the list today precisely because they've had great returns, aren't they? Here's where it's important not to be too hasty, though. Look back to the market-cap rankings from five years ago and what will you find? The top five stocks were IBM, Microsoft, Hewlett-Packard, Intel, and Motorola. The five-year average annualized return for those five stocks was 33%. And the list from three years ago? The top seven were IBM, Intel, Motorola, Microsoft, Hewlett-Packard, Oracle, and Cisco Systems. The three-year annualized return for that group was 48%. (Both three- and five-year lists were held back by Motorola.)

Imagine how well you could have done, sticking with the largest technology stocks after having added a little bit of fundamental analysis to filter out the laggards and the companies with weak fundamentals. So before you head too quickly into the micro-caps, give the big monsters a look. A $25,000 investment spread across these 14 stocks (excluding Lucent) five years ago would be worth $160,000 today. The same investment in an index fund would be worth $48,000. No trading, no market-timing, just Rip Van Winkle technology investing.

Monthly Growth Screens
(Jan. 3 to present)
24.73%  Relative Strength  
10.26%  S&P 500 Index  
8.87%  YPEG Potential  
6.93%  Low Price/Sales  
-2.11%  Investing for Growth  
-11.14%  Unemotional Growth  
-12.17%  EPS Plus RS  
-19.66%  Formula 90  

Annual Value Screens
(Jan. 1 to present)
12.23%  Dogs of the Dow  
11.19%  Dow Jones Ind Avg  
7.53%  Beating the S&P  
3.31%  Unemotional Value  
3.31%  Beating the Dow  
2.11%  Dow Combo  
-3.06%  Foolish Four