<THE FOOLISH FOUR>

Foolish Four Report
by Robert Sheard

LEXINGTON, KY. (Feb. 10, 1998) -- What's the highest Price/Earnings ratio you've ever seen? 100? 200? Maybe an astronomical 1,000?

Would you believe higher than 6,500? And on a Dow stock to boot?

That's the case today with 1998 Foolish Four holding Eastman Kodak <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EK)") else Response.Write("(NYSE: EK)") end if %>. Kodak's trailing twelve-month earnings per share is exactly one penny. And yet the stock trades above $65 a share, giving it a P/E as of this afternoon of better than 6,500.

This, of course, points out one of the potential problems in using a PEG ratio on a large-cap giant like Kodak and the other Dow stocks. The earnings numbers can be distorted in any number of ways and present a false picture of the company's prospects.

Yet because Kodak is still paying out its regular quarterly dividend of 44 cents a share, it has one of the highest ten dividend yields among the 30 Dow components. For Fools, that's the easiest test for value on the Dow stocks. As long as that dividend remains intact, we read it as a sign to be patient and let Kodak straighten out its competition and restructuring problems. The earnings (and then the P/E ratio) will straighten themselves out as the company recovers.

I don't know Kodak's future, of course, and I am only commenting based on how Dow stocks typically run through such recovery cycles. But it is remarkable to see a Dow component with a P/E ratio of 6,500 and still have it considered a "value" stock, isn't it?

Dividend Note: Minnesota Mining & Manufacturing <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MMM)") else Response.Write("(NYSE: MMM)") end if %> has increased its annual dividend from $2.12 to $2.20 per share. Already among the High-Yield 10, 3M just reinforced its position among the higher yielders. Fool on!

[Still confused about the changes to the Foolish Four? Visit our special collection which explains why the Fools have modified our beloved Dow Approach.]

[Want to be the first Fool on your block to get a copy of Robert Sheard's forthcoming book? Click here to pre-order your copy of The Unemotional Investor.]

TODAY'S NUMBERS
Stock  Change   Last 
 -------------------- 
 UK   +2  7/16  49.38 
 IP   -   3/16  47.56 
 MO   -   1/4   43.50 
 EK   +   7/8   65.75 
 
            
                    Day   Month    Year 
         FOOL-4   +1.45%   5.53%   7.48% 
         DJIA     +1.41%   4.92%   4.90% 
         S&P 500  +0.82%   3.95%   5.01% 
         NASDAQ   +1.10%   5.54%   8.83% 
  
     Rec'd   #  Security     In At       Now    Change 
  
  12/31/97  291 Union Carb    42.94     49.38    14.99% 
  12/31/97  289 Int'l Pape    43.13     47.56    10.29% 
  12/31/97  206 Eastman Ko    60.56     65.75     8.57% 
  12/31/97  276 Philip Mor    45.25     43.50    -3.87% 
  
  
     Rec'd   #  Security     In At     Value    Change 
  
  12/31/97  291 Union Carb 12494.81  14368.13  $1873.31 
  12/31/97  289 Int'l Pape 12463.13  13745.56  $1282.44 
  12/31/97  206 Eastman Ko 12475.88  13544.50  $1068.63 
  12/31/97  276 Philip Mor 12489.00  12006.00  -$483.00 
  
  
                              CASH     $77.19 
                             TOTAL  $53741.38