Wednesday, April 15, 1998

The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (April 15, 1998) -- Given that the market appears to be coasting along with considerable momentum, let's check in on our momentum-based Dozens model today -- The Relative Strength Dozen. This approach picks up the highest-ranking stock each month from our 26-week relative strength screen and then hangs on to it for twelve months. (If the top-ranked stock is already in the portfolio, skip down the list for the next best stock not already included.)

In this hypothetical portfolio, we invested $1,000 at the close on December 31 and purchased our first stock -- 26 shares of Best Buy Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBY)") else Response.Write("(NYSE: BBY)") end if %> at $36 7/8 per share. Our first purchase has gone ballistic, already gaining 102.2% in just 105 days! Somebody's buying some serious TVs, stereos and computers.

A month later (1/30/98), we deposited another $1,000 and bought 21 shares of Ethan Allen <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ETH)") else Response.Write("(NYSE: ETH)") end if %>, at $47 7/8. Until this week, the stock had been huge, but after posting earnings yesterday, it's made a dramatic pull-back, even though earnings were ahead of consensus estimates. Right now, Ethan Allen's gain is a much more modest 8.5%. It had been up for us nearly 30%.

At the end of February (2/27/98) a third deposit of $1,000 was made and we picked up 18 shares of high-flier (yuk yuk) Alaska Air Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALK)") else Response.Write("(NYSE: ALK)") end if %> at $55 1/16. Along with the whole airline group, we've had a nice run over the last six weeks, up 8.4%.

Our most recent addition, Whole Food Markets <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WFMI)") else Response.Write("(Nasdaq: WFMI)") end if %>, may have peaked right as we bought it on March 31. Our 14 shares, bought at $69 3/4, are now trading down 9.3% over the last two weeks. It may be a natural pull-back; it may be the beginning of the end. No one knows yet, but our annual holding period is just beginning. We'll wait and see.

Overall, though, who can complain at the portfolio's gains, even if the vast bulk comes from one stock at this early stage? (Don't forget, we still have eight more stocks to buy before we're a fully loaded Dozens approach.)

With $4,000 invested (staggered $1,000 each month), the portfolio is now worth $5,066.88. Calculating an annualized return based on the growth so far this year, it represents a staggering 297.0% gain! (Converted to a more representative year-to-date equivalent, it's 48.7%.)

The Standard & Poor's 500 Index, by way of comparison, is on an annualized pace so far of 64.0%. Converted to a year-to-date equivalent, that represents a 15.3% return so far.

Stay tuned to see if Best Buy has to carry this whole portfolio or whether some of the newer stocks will share the burden. Not quite a third of the way around the year's race course, this horse has early speed. But can it last? Fool on!

Check out the latest file updates for the Workshop:
New Rankings | 1998 Returns | New Database

[Robert Sheard is the author of the forthcoming book, The Unemotional Investor, due out from Simon & Schuster on May 12. To pre-order your copy, please visit Amazon.com, where it's available at a discounted price.]