How business, doctors and journalists prey on your food anxieties I
How business, doctors and journalists prey on your food anxieties I
How business, doctors and journalists prey on your food anxieties I
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I<br />
I<br />
STREETWALKER<br />
A Salom<strong>on</strong> bull<br />
Is ANYONE still bullish <strong>on</strong> Salom<strong>on</strong><br />
Inc . (ss), which has deliN°ered incestors<br />
disappoinmtenr <str<strong>on</strong>g>and</str<strong>on</strong>g> c<strong>on</strong>tinues<br />
to hemorrhage talene Streenvalker<br />
actuallv found a Salom<strong>on</strong> bull . He's<br />
Michael Flanagan, an analyst at Lipper<br />
Analytical Senices .<br />
Flanagan argues that the numbers<br />
indicate Salom<strong>on</strong>'s <str<strong>on</strong>g>business</str<strong>on</strong>g> is<br />
becoming less ~olatile . It earned<br />
$81 milli<strong>on</strong> in the first quarter, a bit<br />
more than it lost in the sec<strong>on</strong>d quarter.<br />
That was a swing of about S140<br />
milli<strong>on</strong> quarter to quarter, as compared<br />
with a swing ofa quarer-billi<strong>on</strong><br />
dollars in the same two quarters last<br />
year . Flanagan is persuaded that the<br />
lower % nlatilirv means Salom<strong>on</strong>'s<br />
traders are taking fewer risks .<br />
At the same time, Salom<strong>on</strong>'s<br />
n<strong>on</strong>trading <str<strong>on</strong>g>business</str<strong>on</strong>g>es are doing better,<br />
with investment banking reNenue<br />
up sevenfold over the first quarter<br />
. Salom<strong>on</strong> will split some 535<br />
milli<strong>on</strong> «~ith Dill<strong>on</strong>, Read & Co . for<br />
advising <strong>on</strong> the merger of Scott Paper<br />
with Kimberl%,-Clark .<br />
Flanagan points out that at a recent<br />
price of 35~/3, Sal<strong>on</strong>t<strong>on</strong>'s shares<br />
are trading at just a shade oN er book<br />
value . C<strong>on</strong>trast that to Merrill<br />
Lynch's price of 1 .8 times hook . Of<br />
course, Merrill has been c<strong>on</strong>sistently<br />
profitable while Salom<strong>on</strong> has been<br />
c<strong>on</strong>sistently erratic, but Flanagan's<br />
point is that if Salom<strong>on</strong> can make<br />
m<strong>on</strong>ey <strong>on</strong> a regular basis, there's ple n<br />
rv of room <strong>on</strong> the upside .<br />
The 1Vlicrosoft factor<br />
LIGHTHOCSS CAPITAL, a $135 milli<strong>on</strong><br />
(assets) Houst<strong>on</strong> investment<br />
firm, has been short a lot of technolog}'shares<br />
. One of its favorites is 5d8<br />
milli<strong>on</strong> (estimated 1995 sales)<br />
UUNet Technologies, which provides<br />
computer users with access to<br />
the Internet . Microsoft has hired<br />
tiUNet (eU NT) for its nesv Windo«°s<br />
95 . Microsoft oNrns 15% of<br />
UUNet .<br />
UUNet came public at 514 a<br />
share in May <str<strong>on</strong>g>and</str<strong>on</strong>g> climbed to 49 last<br />
m<strong>on</strong>th, giving UUNet a market<br />
capitalizati<strong>on</strong> of 51 .4 billi<strong>on</strong>, although<br />
the company has Net to turn<br />
a profit . Even after failing to a recent<br />
182<br />
Hyping the net<br />
Uunet Techn°logies' stock price ( endine ]2595 )<br />
50<br />
Nobody's<br />
~ making m<strong>on</strong>ey<br />
1- ; 4 <strong>on</strong> the Internet?<br />
- ' UUNet's share<br />
40 ~ ' price has tripled<br />
- f since May .<br />
30<br />
20<br />
44r/, it is ovenalued, says Richard<br />
Hunter, an analvst at Lighthouse .<br />
Rakesh Sood, an analyst at Hambrecht<br />
& Quist, disagrees . He's recommending<br />
the stock . But even<br />
Sood c<strong>on</strong>cedes that li UNet %s-ill earn<br />
<strong>on</strong>ly 25 cents a share in 1996 . That<br />
would mean that the stock trades at<br />
178 times next }•ear's earnings,<br />
Killjoy<br />
RL:esaT THE sS.tNTRA : Stocks return<br />
<strong>on</strong> average 10% a cear . That mantra<br />
has lured lots of no N ice imestors<br />
into the stock market . Maybe the<br />
mantra is true, but <strong>on</strong>ly for the<br />
probably ficti<strong>on</strong>al l<strong>on</strong>g-term imestor .<br />
For }'ears <strong>on</strong> end stocks can do<br />
much worse than that . From 1966 to<br />
1982, <strong>on</strong> balance, the} \tent no-<br />
~chere in pr ce <str<strong>on</strong>g>and</str<strong>on</strong>g> returned <strong>on</strong>ly a<br />
modest amount in di~tdends . Then<br />
thcy put <strong>on</strong> a spurt .<br />
John Bogle, founder <str<strong>on</strong>g>and</str<strong>on</strong>g> chairman<br />
of the Vanguard Group of mutual<br />
funds, reminds us of this frightening<br />
<str<strong>on</strong>g>and</str<strong>on</strong>g> patience-testing irregularity .<br />
In an article to be uublished this<br />
m<strong>on</strong>th in the Journal of Porffnlin<br />
,4fasea,gerrzent, Bogle offers a method<br />
for predicting stock <str<strong>on</strong>g>and</str<strong>on</strong>g> b<strong>on</strong>d returns<br />
. If he's right, people aho etoect<br />
10°b, returns <strong>on</strong> equities over the<br />
next decade or so are in for a shock .<br />
Bugle predicts stock returns will<br />
slip to 8% oser the next decade-<strong>on</strong><br />
average, meaning in many years returns<br />
will be lo\% er or even negatiee .<br />
Bogle reached his estimate bv<br />
taking the current dividend yield of<br />
2 .5%, <str<strong>on</strong>g>and</str<strong>on</strong>g> adding to that <strong>on</strong>e of m 'o<br />
sets of figures . For <strong>on</strong>e set of figures<br />
L•e looks at data <strong>on</strong> di% idend growth<br />
~<br />
rates, <str<strong>on</strong>g>and</str<strong>on</strong>g> what the impact <strong>on</strong> returns<br />
will be if the price-to-dkidend ratio<br />
recerts to its historical a% crage .<br />
His alternative method estimates<br />
probable earnings gro vth over the<br />
next decade, <str<strong>on</strong>g>and</str<strong>on</strong>g> figures in the impact<br />
of changes itt'/F mtdtiples back<br />
to their historical median .<br />
Surprisinglv, the two methods<br />
result in virtuallv the same total retLLr<br />
n forecast : an aCCrage 3°.o per<br />
annum . Since about 2 .5 points of<br />
that is dividend yield, he is looking<br />
for anerat7e appreciati<strong>on</strong> of iust 5 .5%<br />
a }'ear-taking into account the<br />
growth of reinvested dividends <str<strong>on</strong>g>and</str<strong>on</strong>g><br />
capital return . Not exactly ~x hat the<br />
ne%cer generati<strong>on</strong> of investors has<br />
come to eapect .<br />
Ho~c seriouslp should <strong>on</strong>e take<br />
Bogle's numbers Very . Using s milar<br />
metltods, he predicted that stocl s<br />
«ould show average returns of 8 .7%<br />
per year in 1990 9-4, <str<strong>on</strong>g>and</str<strong>on</strong>g> his estn<br />
matc N.as right <strong>on</strong> the nose .<br />
By Bogle's reck<strong>on</strong>ing, b<strong>on</strong>ds will<br />
be more competiti~e with stocks than<br />
they have been in recent years . He<br />
predicts that b<strong>on</strong>ds will vieid a shade<br />
under 7% annuaih' over the decade .<br />
<str<strong>on</strong>g>How</str<strong>on</strong>g> does he flgure that? Simple .<br />
He just takes the current yield <strong>on</strong> 30-<br />
aear Treaswys, pointing out that<br />
changes in the market price of b<strong>on</strong>ds<br />
even out over l<strong>on</strong>g periods, lea% ing<br />
income as the driving factor.<br />
Of course, tltat still leaaes stocks<br />
with a tax advantage os-er b<strong>on</strong>ds so far<br />
as individual incestors are cottcerned<br />
. «ith b<strong>on</strong>ds, the [as is <strong>your</strong><br />
partner <strong>on</strong> ere :y interest payment .<br />
With stocks, most ofthe return is<br />
from capital gains, v~hidh are taxed<br />
at a lo%~°er-<str<strong>on</strong>g>and</str<strong>on</strong>g> deferred-rate .<br />
c ,rbes . A t, Su st 1 4 ,199,<br />
2046673438 F<br />
http://legacy.library.ucsf.edu/tid/agf97d00/pdf