Two Stocks, Different Stories
by Jim Stevens (JimStevens@aol.com)
Burlington, VT (April 19, 1999) -- Here in the Foolish Workshop, we don't often join the fray of chatter about short-term price action in this stock or that. I'm making an exception today, but only to show how frustrating the practice can be sometimes. In a week where it seemed some chuckling Fool somehow turned the whole market's underwear inside out, the changing tides of Sun Microsystems (Nasdaq: SUNW) and Eastman Kodak (NYSE: EK) could not have been more opposite.
Since April 8, 1999 Sun is down about 23%, while Kodak has made an incredible run, rising 18% over the same six trading sessions. How did this happen? Did Sun file for bankruptcy? Did Kodak invent some new revolutionary film? Not hardly.
A quick scan of news items during the period on both companies shows what I would call the normal amount of product and business announcements, as well as the usual scuttlebutt about the possible moves in stock prices for companies about to report earnings.
Sun followed the rest of the large-cap tech stocks downward leading up to an earnings report that actually beat estimates. The stock was hammered further when management said in a conference call its next quarter's revenue growth would not match the 24% rate it put up in the latest quarter but may only be 19%.
Kodak, on the other hand, was out in front of the big "return to value" move that went on all week. Their earnings report at the end of the week, which was actually lower than the same quarter last year, was a huge hit with the analysts. An announcement of an expansion in Kodak's stock buyback program also was cheered.
As always, the obligatory analyst downgrade of Sun and upgrade of Kodak came right at the end of the huge moves in the stock prices. The just-in-time Wise strike again -- a crystal ball they are not.
The point of all this is that short-term price movements in individual companies happen so quickly and unpredictably that they become impossible to predict with any degree of accuracy and consistency. The lesson to be learned is it pays to choose an investment strategy and stick with it.
An investor who owns growth companies like Sun exclusively would have undoubtedly taken some hard knocks of late, but he's got a lot of profit to lose if he's been doing it a little while. The value-only investor is presently happy as a clam, since he has been waiting a long time for the value stocks to shine. The investors who have a mix of growth and value stocks are now enjoying the softer landing that comes with the smoother takeoff of a diversified style.
No one knows what lies ahead this week, month, or year, but it's easy to see the perils of reacting to "yesterday's news."
Have a great week!