STOCK MARKET LOOKS GOOD
Brinker Comment: The stock market had another good week. The S&P500 is just 1.9% below its all-time record high. The S&P 500 closed Friday at 1535 and is acting very nicely. The Dow is at 13806. We have seen volatility in the market, but part of that is due to the fact that we are at very high levels. The financial media might make a big deal out of the number of point move in an index, but the number of points is not as important as the percentage move. If the Dow were trading at 100,000, and it was down 1,000 points that would only be 1%. Today, a 1% move in the Dow is 138 points. In 1982, a 1% move was 8 points. When the financial media gets focused on the number of points the Dow is down, ignore it. Focus on the percentages.
Brinker Comment: We like to see what we had a week before last where we had a big down day which shook out some investors. This is a good development because it rids people who should not be in the market. "Stocks tend to fluctuate" as J.P. Morgan once said, and that is an absolute truth. The investors who get bent out of shape over short term fluctuations in the market should not be in the market.
EC: Bob remains bullish on U.S. equities. In his opening remarks, he gives some insights into how he views quick drops in the market during an ongoing bull market. Remember we had over a 300 point drop in the Dow on October 19th? For some market-timers (particularly the momentum type), that kind of drop can trigger sell signals. For some technical types, it also doesn't bode well because it is usually accompanied by horrible market internals. For purposes of Bob's long term stock market timing, this kind of down day in the context of a bull market is a healthy development.
MICROSOFT (MSFT )
Brinker Comment: Microsoft reported earnings on Thursday night and it was a great report! The new version of Windows has really increased the growth rate at the company. The Vista version has really been on a tear. Sales of Windows Vista are up 25%. Net income is up 23%. Revenues are up 27%. Every one of the company's five divisions exceeded goals. Coming up in February, Microsoft will issue updates to its products. If you go back to the early 1990s, Microsoft has been an incredible stock. If you invested $7,000 in Microsoft in 100 shares in the 1990s, that would be worth $252,000 today. How can that be? The stock split so many times that you would now have a quarter of a million dollars. The stock rose 9.5% on Friday alone, bringing the stock up into the mid-$30s. All in all a great report for Microsoft.
EC: Microsoft is one of only two stocks that Bob has maintained a "hold" rating on in his newsletter for many many years. The last stock he recommended was UTEK , and given the fiasco surrounding that stock, I think he is gun shy over picking another individual stock, and I think it is possible that he never will again. As far as Microsoft is concerned, it has underperformed the market until recently, but the earnings report was wonderful. Bob recommended it for purchase many years ago, then switched to a hold, and then in March 2003 recommended it as a buy again, and now it is a hold. He hasn't really talked about it for a long time, but in the wake of this great earnings report, I think he wanted to remind listeners that he still covers it in his newsletter.
EC#2: You may recall that I purchased Microsoft for my newsletter portfolio not all that long ago based on my view that Vista would be an earnings boost. I sold Microsoft for a gain, after my stop loss was executed during the correction process this summer. Should have bought back in, but I am happy about putting some of the cash reserves into the QQQQ shares which are up almost 11% since my purchase, and include shares of Microsoft. In fact, QQQQ constitutes over 5% of that index. The Spiders Select Technology (Ticker: XLK) which I also own in my newsletter portfolio has a ton of Microsoft in it, almost 10% of that exchange traded fund holds Microsoft, so it has benefitted from that company's performance as well. Here is a link to Microsoft's Investor Relations web site where you can download the earnings report listen to the webcast and read the 2007 annual report:
Excerpted by Kirk Lindstrom from "David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service. Copyright David Korn, L.L.C. 2007." October 27-28, 2007 Newsletter
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