<THE FOOLISH FOUR>
by Robert Sheard
LEXINGTON, KY. (July 9, 1998) -- The second-quarter earnings season for Dow stocks continued today with one report and one earnings warning. Being the "half-full" kind of guy, I say let's look at the positive first.
General Electric <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GE)") else Response.Write("(NYSE: GE)") end if %>, the largest American company, reported earnings of 74 cents a share today, 14% higher than last year's 65 cents. The consensus estimate was also 74 cents, one of the rare times analysts hit the mark dead on.
Despite a weak market most of the day for the Dow, General Electric stock was higher by more than $2 a share midday.
On the downside today, however, was a stock in some of your Foolish Four portfolios, DuPont <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DD)") else Response.Write("(NYSE: DD)") end if %>. DuPont shaved off 9% of its value after announcing that second-quarter earnings are going to be 10% to 15% below last year's level of 99 cents a share. So instead of the $1.01 a share analysts were expecting, the company now believes it'll report 84 to 89 cents a share.
The company named a variety of reasons, chief among them "a sudden weakness in its crop protection products unit." Also on the blame list were weather and competitive pricing pressure in North America, weak demand and currency translations in Asia, sharply lower oil prices, the General Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GM)") else Response.Write("(NYSE: GM)") end if %> strike, and lower demand in the textile apparel industry. Of course, we all know it was entirely the result of El Nino.
Finally, in news directly affecting Dow Approach users, the Senate today passed a bill that includes a provision to roll the capital gains tax holding requirement back from 18 months to 12 months. It passed both the House and the Senate nearly unanimously and President Clinton has promised to sign it. Assuming that happens, the 20% rate now in place for 18-month holdings will be extended to 12-month holdings (and it's retroactive to January 1, 1998).
So all the various discussions about holding periods for different tax rates has been for naught, it seems. There's still a lot of confusion about which combination of holding period and seasonality achieves the best raw return, but for me, the simplest plan is a one-year holding period starting whenever you've got the money to begin. Fortunately, now the tax ramifications won't be in the way of such an easy plan any more.
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.]
07/09/98 Close
Stock Change Last -------------------- UK -1 53.50 IP - 1/2 43.38 MO + 15/16 39.19 EK + 1/16 74.38 |
Day Month Year
FOOL-4 -0.30% 1.29% 9.99%
DJIA -0.93% 1.54% 14.94%
S&P 500 -0.67% 2.18% 19.39%
NASDAQ +0.23% 2.38% 23.53%
Rec'd # Security In At Now Change
12/31/97 291 Union Carb 42.94 53.50 24.60%
12/31/97 206 Eastman Ko 60.56 74.38 22.81%
12/31/97 289 Int'l Pape 43.13 43.38 0.58%
12/31/97 276 Philip Mor 45.25 39.19 -13.40%
Rec'd # Security In At Value Change
12/31/97 291 Union Carb 12494.81 15568.50 $3073.69
12/31/97 206 Eastman Ko 12475.88 15321.25 $2845.38
12/31/97 289 Int'l Pape 12463.13 12535.38 $72.25
12/31/97 276 Philip Mor 12489.00 10815.75 -$1673.25
CASH $754.73
TOTAL $54995.61
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