<THE FOOLISH FOUR>

Developing Story
by Chris Rugaber
(TMF RFK)

Alexandria, VA. (Oct. 15, 1998) -- The recent gyrations of Foolish Four stock Eastman Kodak <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EK)") else Response.Write("(NYSE: EK)") end if %> provide an excellent example of the fickleness of the short-term stock market, a fickleness that Foolish Four investors can happily ignore. In the past week Kodak experienced two rapid price shifts that produced markedly different reports from Wall Street.

After Kodak's stock rose 4% on October 9th, the Dow Jones Newswire reported that Eastman Kodak was benefiting from a "flight to quality" by investors. A Lehman Brothers analyst said that "Kodak is less immune to a domestic market slowdown because... film usage is not that sensitive to the swings in the economy."

The same article quoted another analyst as noting that Kodak's price fight with Fuji this summer wasn't as intense as last year's. Finally, yet another analyst pointed out that as the yen rebounded against the dollar, Kodak would have an easier time competing overseas.

So, as of October 9th, everything's looking great for Kodak, right? The share price went up, so everyone decided to look at the positive side. But then on October 13th, two trading days later, Kodak's third quarter results revealed that revenue declined 10% from the year-ago period. The stock dropped like a rock, down 13% to 72 3/8. A noticeably different article from the Dow Jones Newswire reported that the downturn reflected "deep concerns about revenue declines in emerging markets and continued weakening film prices." Sales fell 55% in Russia and 22% in China, and film prices declined 10% from the year before as a result of Kodak and Fuji's price war.

Some analysts were "astounded" by the drop in Kodak's price, according to a New York Times article Wednesday. "Anyone who looked for top-line growth in 1998 simply doesn't understand the Kodak story," a Morgan Stanley Dean Witter analyst was quoted as saying.

True enough. But either way, the Dow Dividend investor shouldn't worry too much about the market's schizophrenic attitude towards Kodak. This year Kodak has followed a classic Dog of the Dow trajectory. Its stock rose as analysts rewarded its cost-cutting measures and its successful fight (so far) against Fuji to maintain its market share in 35 mm film. According to its third quarter report, Kodak increased operating margins from 11.5% to 18.5% and cut selling and general administrative expenses by over 25% compared to the year-ago quarter.

Eastman Kodak is the highest-returning stock of this year's Foolish Four. So ignore the short-term gyrations: the Foolish Four is way ahead of both the Dow Jones and the Standard & Poor's 500 Index this year, and Kodak is the primary reason.

Current Dow Order | 1998 Dow Returns

10/15/98 Close

Stock Change Last -------------------- UK + 15/16 41.94 IP +1 1/8 45.94 MO - 1/8 48.81 EK +1 13/16 74.56

Day Month Year FOOL-4 +1.73% -0.63% 10.13% DJIA +4.15% 5.82% 4.95% S&P 500 +4.17% 3.00% 7.94% NASDAQ +4.54% -4.89% 2.59% Rec'd # Security In At Now Change 12/31/97 206 Eastman Ko 60.56 74.56 23.12% 12/31/97 276 Philip Mor 45.25 48.81 7.87% 12/31/97 289 Int'l Pape 43.13 45.94 6.52% 12/31/97 291 Union Carb 42.94 41.94 -2.33% Rec'd # Security In At Value Change 12/31/97 206 Eastman Ko 12475.88 15359.88 $2884.00 12/31/97 276 Philip Mor 12489.00 13472.25 $983.25 12/31/97 289 Int'l Pape 12463.13 13275.94 $812.81 12/31/97 291 Union Carb 12494.81 12203.81 -$291.00 CASH $754.73 TOTAL $55066.61