The Motley Fool: The Foolish Workshop

Thursday, May 7, 1998

The Daily Workshop Report
by Robert Sheard (TMF Sheard)

LEXINGTON, KY. (May 7, 1998) -- Since the Standard & Poor's 500 Index's recent closing high of 1130.50 on April 22, the major market benchmark has backed off roughly 2.6%. This is certainly not significant, but even a slight pull-back seems like news of late.

Let's see what it's done to our six "Dozens" portfolios, however. For new readers, the Dozens approach buys (or updates) one new stock each month using a particular screen's current rankings. So far, of course, we've only picked up five stocks in each of our test groups, so the results at such an early stage are both very skewed and very volatile. Any surge or drop in a single stock can move the model's overall returns dramatically. The overall returns won't mean a tremendous amount until we have at least one full year under our belt. Nevertheless, it's fun to watch as this first year's group is built.

The overall returns account for the time weighting of each month's new infusion of cash, so a straight average of the five stocks' returns will not be equal to the internal rate of return calculated here.

Leading the pack is our Formula90 Dozen, up an annualized 131.9%. (This is a year-to-date equivalent of 34.0%.) The following are the positions held in the portfolio, in the order they were acquired (one on the last trading day of each month, beginning with December):

 
 Safeskin <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SFSK)") else Response.Write("(Nasdaq: SFSK)") end if %>               31.1% 
 Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %>          73.5% 
 United Stationers <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USTR)") else Response.Write("(Nasdaq: USTR)") end if %>       3.5% 
 Ethan Allen <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ETH)") else Response.Write("(NYSE: ETH)") end if %>              -13.2% 
 Capital One Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COF)") else Response.Write("(NYSE: COF)") end if %>     -3.6%

Next in the rankings is the Relative Strength Dozen (using the 26-week method we track in the Workshop). Until recently, this approach had led all comers, but recent drops in two stocks have pulled the overall returns down. The annualized return for this group is 76.5%, a year-to-date equivalent of 21.9%.

 
 Best Buy Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBY)") else Response.Write("(NYSE: BBY)") end if %>               87.3% 
 Ethan Allen <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ETH)") else Response.Write("(NYSE: ETH)") end if %>                 8.3% 
 Alaska Air Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALK)") else Response.Write("(NYSE: ALK)") end if %>          -16.0% 
 Whole Food Markets <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WFMI)") else Response.Write("(Nasdaq: WFMI)") end if %>     -17.0% 
 Capital One Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COF)") else Response.Write("(NYSE: COF)") end if %>     -3.6%

With its latest addition, the Keystone Dozen has picked up ground in the last week, sporting an annualized return overall of 62.6%, a year-to-date equivalent of 18.4%.

 
 Fifth Third Bancorp (Nasdaq; FITB)    -7.5% 
 Schering-Plough <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SGP)") else Response.Write("(NYSE: SGP)") end if %>           13.1% 
 Pfizer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PFE)") else Response.Write("(NYSE: PFE)") end if %>                    22.0% 
 Telecom., Inc. 'A' <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TCOMA)") else Response.Write("(Nasdaq: TCOMA)") end if %>     8.1% 
 America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %>            13.0%

The Dow Dozen (which uses the Unemotional Value rankings) is also keeping ahead of the S&P 500 Index. Our first five Dow stocks are currently sporting an annualized gain of 49.2%, a year-to-date equivalent of 14.9%.

 
 Union Carbide <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UK)") else Response.Write("(NYSE: UK)") end if %>       19.8% 
 International Paper <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IP)") else Response.Write("(NYSE: IP)") end if %> 13.1% 
 AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %>                 -5.0% 
 Eastman Kodak <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EK)") else Response.Write("(NYSE: EK)") end if %>       10.8% 
 General Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GM)") else Response.Write("(NYSE: GM)") end if %>       0.1%

Next in the rankings is the S&P 500 Index itself, with an annualized return so far of 43.6%. That equated to a year-to-date gain of 13.4%. Unfortunately, the last two groups are doing considerably worse than the benchmark. Next is the Low Price/Sales Dozen, which has four out of five holdings suffering a loss right now. The first stock included, however, has just barely enough of a gain where the overall portfolio's got one nostril above water. The annualized overall return is a negligible 0.5%. That's the equivalent of a year-to-date gain of 0.17%, not much to be thrilled about.

 
 VWR Scientific <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VWRX)") else Response.Write("(Nasdaq: VWRX)") end if %>     15.4% 
 Alaska Air Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALK)") else Response.Write("(NYSE: ALK)") end if %>      -4.8% 
 Whole Food Markets <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WFMI)") else Response.Write("(Nasdaq: WFMI)") end if %> -5.4% 
 Lowe's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LOW)") else Response.Write("(NYSE: LOW)") end if %>                -2.4% 
 Pillowtex <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PTX)") else Response.Write("(NYSE: PTX)") end if %>             -2.5%

Worst of all, however, is the Dow Racers group, which chooses the Dow component each month with the best 26-week total returns (relative strength). While relative strength has been tested again and again as a good factor in choosing winning stocks, our very brief test with it on the Dow stocks has begun poorly. Overall, the portfolio is actually on a pace to lose 10.6% this year, a year-to-date equivalent of -3.8%.

 
 AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %>         -5.6% 
 Disney <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %>     10.9% 
 Merck <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MRK)") else Response.Write("(NYSE: MRK)") end if %>      -9.0% 
 Wal-Mart <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMT)") else Response.Write("(NYSE: WMT)") end if %>   -1.2% 
 Sears <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: S)") else Response.Write("(NYSE: S)") end if %>        -4.8%

(None of these returns includes dividends.) While there's been some fluctuation among the leaders, it's apparent nevertheless that the models relying most heavily on relative strength are the ones snagging the most winners. (Don't know quite what to make of the lousy Dow Racers' numbers so far.) Check in tomorrow for the new Workshop rankings, returns, and database numbers. Fool on!

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

[Robert Sheard is the author of the The Unemotional Investor (Simon & Schuster, 1998) available now at Amazon.com and your local bookseller.]