Is
Your Father's Market Making A Come-Back?
by Sy Harding,
editor
The Street Smart Report Online
What
is this? Value and earnings are important after all?
Last year investors chased the
stocks of exciting new companies, many of which had no earnings
and precious little hope of earnings, to incredible heights,
while selling off solid old companies with good earnings, on
the theory that it was a new era.
It resulted in some strange statistics
for the year.
As Merrill Lynch analyst Robert
Farrell asked in a recent Washington Post article, "How
can it be that companies reporting no earnings saw their stocks
up an average of 52%, while the companies with earnings
saw their stocks decline an average of 2%.
While the Nasdaq Composite was
up 85% for the year, the largest one-year gain for any U.S. market
in at least 100 years, just 65 high-flying Internet and technology
stocks, accounted for 90% of that gain, while by far the majority
of stocks were down for the year.
Very strange.
In view of the unsustainable distortions
that activity created, in last week's column I predicted investors
would find an entirely different environment in the new year,
and should concentrate their investments in last year's losers,
now on the bargain table, while avoiding the bubble's in 1999's
big winners.
However, I certainly didn't expect
the reversal to be so sudden.
Last year's high-flyers hit the
skids almost before the last embers of the Millennium fireworks
faded away. The Nasdaq, home of most of those high flyers, lost
10% of its value in three days. Some of the individual stocks
lost up to 25%. That's obviously an even faster pace than the
Nasdaq's meteoric 85% rise over 12 months last year.
That's the bad news.
The good news is that while the
65 stocks that led the Nasdaq Composite up last year are running
into heavy profit-taking, we now have the majority of stocks
to the upside, and some common sense behind the interest in the
stocks that are making gains.
That broadening out of the rally
to encompass the majority of stocks, and a return to normalcy
in investors' expectations, should be just what is needed for
the rally that began in October to have staying power.
Which stocks are attracting buying
now that the technology sector has lost its luster? Would you
believe blue chips like General Motors and FDX Corp (both of
which we recommended to you in a November column), Dow Chemical,
Proctor & Gamble, Alcoa, Bethlehem Steel, and some of the
small-cap stocks that were beaten down so much last year.
One you might want to investigate
is Nature's Sunshine Products (NATR).
The company manufactures and markets
herbal products, natural vitamins, food supplements, and natural
skin care products, all the healthy kind of stuff that's becoming
so popular. It's a small company, annual sales around $300 million,
but it operates around the world; in the U.S., Asia, Latin America,
Canada, and the U.K., selling through local distributors and
a sales force of `associates' on a pattern similar to Amway and
Herbalife.
On that expectation, investors took the stock out and shot it last year. The stock price plunged 75%, from a high of 28 to less than 8, harsh treatment for just a 14% decline in earnings.
With international economies now recovering strongly, estimates are that earnings will grow to $1.25 a share in 2000, 16% higher than 1999, and a return to a double digit growth rate.
Meanwhile, the stock's plunge has the shares selling at just 7 times earnings. The company itself has taken advantage of the depressed price, buying back 1 million of the 18 million outstanding shares, and company insiders have been personally buying their company's stock.
There's no guarantee that even a beaten down stock will perform. But, this one does look like it's at least worth considering.
Meanwhile, we may turn out to be wrong, but we still like the market's prospects for the next few monthsif the technology sector is avoided.
Editor's Note: Sy Harding is president of Asset Management Research Corp., 169 Daniel Webster Hwy., Meredith, NH 03253, publisher of The Street Smart Report, 1 year, 17 issues, $225 (now in its 13th year of exceptional market research for professionals and serious investors) and The Street Smart Report Online at www.StreetSmartReport.com, and author of Riding the BearHow to Prosper in the Coming Bear Market, $12.95. The book introduces The Seasonal Timing System© which tripled the return of the Dow over the last 35 years through bull and bear markets, and did so with half of market risk. Available at most book stores, amazon.com, barnesandnoble.com or StreetSmartReport.com.
