<THE FOOLISH FOUR>

Foolish Four Report
by Robert Sheard

LEXINGTON, KY. (Feb. 18, 1998) -- One of the newcomers to the Dow Jones Industrial Average, Hewlett-Packard <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %> posted quarterly earnings last evening of 86 cents per share, missing First Call estimates by two cents per share. The stock rallied today nonetheless.

Despite also warning about a continuing difficult situation in Asia, Hewlett-Packard announced some restructuring moves that are expected to save some $100 million a year, including a consolidation of some North American inkjet production operations. Roughly 1,000 employees will be affected by the move, but the company plans to offer them jobs elsewhere.

After the report, a handful of analysts trimmed their 1998 earnings estimates. Why did the stock rally, then? Excellent question. I can only speculate, but I imagine some investors believed the results would be hurt even more by Asia and are encouraged by the company's efforts to control costs and move some emphasis toward the lower end of the inkjet market, where it hasn't previously been focused.

Sears <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: S)") else Response.Write("(NYSE: S)") end if %> also defied gravity a bit today, rising in price despite announcements from management in an analysts meeting that painted a very cautious picture for the retail behemoth.

Overall, Sears expects earnings growth in 1998 to be in single digits, but certain divisions look bleak. The credit card unit, for example, is expected to see a 50% decline in operating earnings for the year.

Chairman and CEO Arthur Martinez expects same-store sales to grow by three to four percent for the year and foresees credit problems "continuing somewhat in 1998." He claims, however, that the brunt of Sears' credit card problems appeared in 1997.

CFO Gary Crittenden expects the core businesses to increase operating earnings by eleven to thirteen percent a year over the next five years. Is it another case of "it could have been worse"? Looks that way.

While it's a good idea to keep abreast of such news items on your Dow Approach holdings, it's important not to over-analyze each such story. The success of the Dow Approach is built on the simplicity of the numbers involved and the total exclusion of such "story analysis." Sticking to the disciplined approach always helps the investor who is easily swayed by every contrary opinion. "He has a point, but so does he. Now what?"

If you're not up to doing extensive individual stock analysis, put your trust in the Dow Dividend Approach numbers instead of "the story" and relax with the comforting knowledge that these high-yield approaches have been embarrassing mutual funds for as long as funds have been popular. Fool on!

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TODAY'S NUMBERS

Stock Change Last -------------------- UK - 11/16 46.44 IP - 1/16 48.44 MO - 5/8 42.19 EK - 1/2 66.25

Day Month Year FOOL-4 -0.92% 3.84% 5.76% DJIA +0.63% 6.89% 6.86% S&P 500 +0.91% 5.28% 6.35% NASDAQ +0.72% 5.95% 9.25% Rec'd # Security In At Now Change 12/31/97 289 Int'l Pape 43.13 48.44 12.32% 12/31/97 206 Eastman Ko 60.56 66.25 9.39% 12/31/97 291 Union Carb 42.94 46.44 8.15% 12/31/97 276 Philip Mor 45.25 42.19 -6.77% Rec'd # Security In At Value Change 12/31/97 289 Int'l Pape 12463.13 13998.44 $1535.31 12/31/97 206 Eastman Ko 12475.88 13647.50 $1171.63 12/31/97 291 Union Carb 12494.81 13513.31 $1018.50 12/31/97 276 Philip Mor 12489.00 11643.75 -$845.25 CASH $77.19 TOTAL $52880.19