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TMFFuz (John) wrote: The threshold margin may indeed help with GAP (I never thought of that), but it certainly does not help with CAP, in my opinion. CAP is fundamentally based on expectations in the marketplace. You only benefit when you have a divergent view from the market.

John: First, if I find a company with a much better threshold margin than any of it's competitors, that would probably influence my expectations of its CAP. Secondly, the following seems to show a divergent view from the market.

The past few months have been a horrible time to have money invested in the stock market, Right? QQQ has only recently come back to 0% gain YTD. The only good thing one can say about 0% YTD is that it is better then the -7% YTD of the NASDAQ Composite, the -8% YTD of the DJIA and the -2% YTD of the S&P 500 indices. But wait; these hairy simian and large girth noble companies are supposed to lose less market value in a down market and rebound quicker then the rest of the lot, because they have more EVA - Right? Isn't that what we tell ourselves and Newbies to this board?

In fact; while the NASDAQ languishes some 30% below its high set back in March and 7% below its early Jan close, one company's stock is only two points below an all-time high and six of the nine evaluated companies have gains in excess of 40% YTD.

For this study, I selected nine companies which I compared YTD gains and 1 Mar-TD High/Lows, and list Today's (6/13) price/share. I used the 1Mar-TD time frame of the YTD % chart, since the indices turned negative about that time and stopped helping support higher stock prices.

Company YTD 1 Mar-TD Today's
Symbol gain High / Low Price
JNPR 100% 175% 30% 237+
NTAP 100% 190% 0% 86+
SEBL 75% 100% -12% 150+
INTC 53% 72% 30% 131+
ORCL 47% 60% 7% 81+
JDSU 42% 85% -7% 121+
EMC 28% 31% -3% 71
CSCO 20% 52% -7% 65
GE 2% 7% -19% 51+
QQQ 0% 29% -20% 94+
NASDAQ -7% 23% -22%
DJIA -8% 2% -14%
S&P500 -2% 3% -8%

Using this data, lets examine the above two assertions.

1) While the three indices were losing 45%, 16% and 11%, respectively, from their highs; all nine companies lost a higher percentage of their market caps than their respective indices. Assertion #1 seems to have failed. However, this was because the companies had higher highs than their respective indices since only one of the nine companies matched the low of these indices - GE. GE is a good non-GG company I added for comparison. Did assertion #1 fail?

2) While the three indices have gained 15%, 6% and 6%, respectively, from their lows and are still losing to their early Jan 00 close ; all nine companies have regained a higher percentage of their market caps than their respective indices and all of the nine companies are above their early Jan 00 close. Assertion #2 seems to have held.

As an example of the EVA capability of the first eight GG companies in the above list, please see Phil Weiss' May 10, 200 article on Cisco, linked below:

This article highlights a year-over-year revenue growth of 55%, year-over-year cash balance growth of 129%, and, sequentially, optical business sales growth above 60%.


PS: Please suffer my percentages. They are my engineering extrapolations taken from Big Chart % graphs on the TMF Portfolio section. Any minor errors in these percentages shouldn't negate the results of this study.

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