The Motley Fool: The Foolish Four, Tuesday, May 5, 1998

<THE FOOLISH FOUR>

Foolish Four Report
by Robert Sheard

LEXINGTON, KY. (May 5, 1998) -- The simple premise behind our beloved Dow approaches is that a relative high yield is an indicator of value, a stock that's somewhat out of favor compared to the rest of the group. As many readers here and in the Workshop area have noted, though, the high-yield method doesn't always pick the very best stocks each year from the field.

There are other ways to choose stocks besides high yield, although the high yield record is terrific for decades and decades. One other approach is to focus on the stocks with the best relative strength. While we'll be able to test some relative strength screening techniques more thoroughly with Bob Price's (TMF Sandy) new monthly Dow database, for now we'll simply continue to follow along with our informal tests of Dow Relative strength.

For stocks being held one year, the best relative strength test, according to an extensive study performed by two researchers at UCLA in 1993, is a 6-month screen. So for you Dow investors looking for a another way to gauge the Dow stocks, today I'll post the rankings for the thirty Dow components by their 26-week returns.

50.00 Disney (Walt) <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %>
42.36 Wal-Mart Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMT)") else Response.Write("(NYSE: WMT)") end if %>
38.92 Sears Roebuck <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: S)") else Response.Write("(NYSE: S)") end if %>
35.52 United Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UTX)") else Response.Write("(NYSE: UTX)") end if %>
31.87 Merck & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MRK)") else Response.Write("(NYSE: MRK)") end if %>
30.25 McDonald's Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MCD)") else Response.Write("(NYSE: MCD)") end if %>
29.55 Coca-Cola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KO)") else Response.Write("(NYSE: KO)") end if %>
29.31 Travelers Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRV)") else Response.Write("(NYSE: TRV)") end if %>
28.97 Du Pont <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DD)") else Response.Write("(NYSE: DD)") end if %>
28.53 Amer. Express <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AXP)") else Response.Write("(NYSE: AXP)") end if %>
27.91 Gen'l Electric <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GE)") else Response.Write("(NYSE: GE)") end if %>
23.74 AT&T Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %>
22.56 Exxon Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XON)") else Response.Write("(NYSE: XON)") end if %>
22.24 Hewlett-Packard <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %>
21.93 Johnson & Johnson <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JNJ)") else Response.Write("(NYSE: JNJ)") end if %>
20.37 Procter & Gamble <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PG)") else Response.Write("(NYSE: PG)") end if %>
19.85 Eastman Kodak <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EK)") else Response.Write("(NYSE: EK)") end if %>
19.69 AlliedSignal Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALD)") else Response.Write("(NYSE: ALD)") end if %>
18.09 Int'l Business Mach. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %>
17.00 Morgan (J.P.) & Co <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JPM)") else Response.Write("(NYSE: JPM)") end if %>
11.93 Goodyear Tire <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GT)") else Response.Write("(NYSE: GT)") end if %>
9.65 Int'l Paper <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IP)") else Response.Write("(NYSE: IP)") end if %>
8.33 Aluminum Co. of Amer. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AA)") else Response.Write("(NYSE: AA)") end if %>
6.15 Boeing <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BA)") else Response.Write("(NYSE: BA)") end if %>
5.17 Caterpillar Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAT)") else Response.Write("(NYSE: CAT)") end if %>
4.38 Chevron Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CHV)") else Response.Write("(NYSE: CHV)") end if %>
3.52 Union Carbide <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UK)") else Response.Write("(NYSE: UK)") end if %>
1.35 Gen'l Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GM)") else Response.Write("(NYSE: GM)") end if %>
1.31 Minnesota Mining <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MMM)") else Response.Write("(NYSE: MMM)") end if %>
-3.48 Philip Morris <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MO)") else Response.Write("(NYSE: MO)") end if %>

These figures are through April 29. Once we get our hands on Sandy's new numbers, we'll be able to run a historical backtest using 6-month relative strength to see how such a model fares with the historical backtesting on the high-yield approaches.

Tomorrow, TMF Debit will be sitting in for me as I have a series of radio interviews to do for The Unemotional Investor. I'll be back with you again on Thursday. Fool on!

Current Dow Order | 1998 Dow Returns

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

TODAY'S NUMBERS

Stock Change Last -------------------- UK +2 1/4 53.75 IP -1 1/16 52.44 MO + 1/4 39.44 EK -1 7/16 74.75

Day Month Year FOOL-4 +0.21% 4.92% 14.99% DJIA -0.49% 0.93% 15.67% S&P 500 -0.57% 0.35% 14.96% NASDAQ -0.65% -0.19% 18.76% Rec'd # Security In At Now Change 12/31/97 291 Union Carb 42.94 53.75 25.18% 12/31/97 206 Eastman Ko 60.56 74.75 23.43% 12/31/97 289 Int'l Pape 43.13 52.44 21.59% 12/31/97 276 Philip Mor 45.25 39.44 -12.85% Rec'd # Security In At Value Change 12/31/97 291 Union Carb 12494.81 15641.25 $3146.44 12/31/97 206 Eastman Ko 12475.88 15398.50 $2922.63 12/31/97 289 Int'l Pape 12463.13 15154.44 $2691.31 12/31/97 276 Philip Mor 12489.00 10884.75 -$1604.25 CASH $415.96 TOTAL $57494.90