European Stars And Stripes (Newspaper) - April 13, 1986, Darmstadt, Hesse                                Sunday april 13, 1986 the stars and stripes Page 19 some investors Selling Long term Bonds Max or do met irn new York not William h. Gross Edgar Reed and Harvey m. Spiro each manage portfolios of Bonds for differ ent investment firms and have different approaches to making Money for their clients. But these Days they Are making similar moves Selling hundreds of millions of dollars Worth of Long term Treasury Bonds and buying a mix of Shorter term securities. Their strategy stems from the common belief that the explosive rally in the Long end of the Treasury Bond Market is running out of Gas at least for the time being. What they Are now buying instead Are fixed in come securities that have lagged behind those whose interest rates have not declined nor prices risen As much As the Benchmark Long Treasury Bond. Although the Bond managers see a better Chance for Price gains from their new in vestments the moves Are basically less aggressive because Shorter term securities Are less volatile and perform better in a Flat Market. What we re doing is taking advantage of those areas that Haven t moved up As much said Gross managing director of the Pacific investment management co. In Newport Beach calif., which handles about $10 billion in assets. If the Market is Flat or moves Only slightly higher or lower in the near term As we expect this strategy will be the biggest Winner by  in recent weeks Pacific investment has sold about $700 million in Long term treasuries with maturities of up to 30 years and purchased corporate Bonds intermediate Treasury Bonds with maturities of roughly 10 or 12 years and certain mortgage backed securities according to Gross. When investors believe interest rates Are heading lower they like to lock in the cur rent High rates for As Long As possible. That tendency is what has raised the Benchmark 30-year Treasury Bonds so sharply. According to indexes calculated by Shearson Lehman Brothers Long term Treasury Bonds have posted a total return including yield and Price appreciation so far this year of a remarkable 20.11 percent compared with 5.86 percent for intermediate term Treasury Bonds and 8.53 percent for a mixed group of government and corporate Bonds. By comparison the Standard & poor s 500-Stock Index has risen about 10 percent so far this year in what has been regarded As an explosive rally. Measured just by Price alone the Long Bond has also bounded Well ahead of other securities. Since the end of september the Shearson Lehman Index of Long Treasury Bonds has soared almost 31 percent in Price. Meanwhile the government corporate Bond Index has grown slightly More than 11 percent in Price Over the last six months and the intermediate Index has risen just 5.5 percent. Gross s less aggressive posture toward investor s guide by William Doyle q. A newsletter i receive often stresses numbers for the dividends yields and Price earnings ratios of stocks. Please define All three. And which of these numbers should be used in determining if a particular stocks a Good buy a. The definitions come easy. Trying to determine if a Stock is a Good investment is something else. Anyone who could come up with a sure answer based on a Stock s dividend yield Price earnings ratio and or a multitude of other information would get mighty Rich in a hurry. The dividend is the amount of its profits a company currently pays annually on each share to stockholders. The yield is the annual dividend divided by the Stock s current Price. If the dividend is $1 and the Price is $20, the Stock has a 5 percent current yield. The Price earnings ratio is the relationship Between a Stock s Market Price and its earnings. If Xyz corp. Reported a net profit of $2 a share Over the latest 12 months and Xyz common Stock is trading at $20, the be ratio is 10-to 1. Expressed another Way it s Selling at 10 times  the be ratio is probably the most closely watched of the three in attempting to determine if a Stock s Market Price is Likely to increase. Growth stocks those with past records and future potential of above average earn Ings increases usually have High Pes. That s because investors and traders Are willing to pay higher prices for growth stocks. Stocks with average or below average earnings growth normally have lower Pes but generally have higher yields. As i write this the 30 Blue Chip stocks in the Dow Jones Industrial average have an average be of 11. Remember that s  some have higher Pes some have lower Pes. If you spot a Stock with a Low be and with Good earnings growth chances Are you have spotted a Winner. However you had better study the company and its Stock very carefully. It might have a Low be because its future in t very Bright. Q. For what periods of time Are the Price earnings ratios in newspaper Stock tables base a. Each be is calculated on each Stock s latest reported 12-month earn Ings. Right now that Means most stocks Pes Are based on 1985 earnings. As companies report earnings for the first Quarter of this year the Pes will reflect earnings from april 1, 1985, through March 30, 1986. Q. My broker gave me a list of Price earnings ratios for a Long list of stocks. All Are different than the Pes in news paper Stock tables. He says his Pes Are better than the newspaper because they Are based on 1986 earnings. Your com ments a. Your broker s list no doubt is of projected Pes based on what his firm s research department estimates the stocks will earn this year. Those estimates might or might not pan out. Q. A Stock in which i own a Small num Ber of shares pays $2.80 a year in dividends currently is trading around $70 and has a Price earnings ratio of "5." a rapid calculation tells me the company earned $14 a share. Does t this also mean the company can afford to pay $14 in dividends a. Your arithmetic is Correct but your thoughts about the dividend going sky High Are unrealistic. You can get a Quick fix on a Stock s per share earnings through the simple process of dividing its Market Price by its be multiple. However a company Seldom pays out All of its earnings in dividends. Part of that Money normally is kept As retained earn Ings and used by the company to expand its business. It s a rare Case when a company pays out anything approaching 100 percent of its earnings. Nevertheless because the company in which you own Stock is paying a $2.80 dividend while earning $14 a share it s Likely the dividend will be increased at least moderately in the near future. King features columnist Doyle welcomes written questions but he can provide answers Only through the column. You can write to him in care of the stars and stripes Apo 09211. The Market was typical of what Many other professionals said they were now doing. The treasuries rocketed and left every thing else behind before said Reed a vice president at the funds management unit of the Aetna life and casualty co. He said his unit which does not expect these longer Bonds to continue to Rise at the same break neck Pace has switched about 30 percent of its funds that were invested in Long term Treasury Bonds into corporate Bonds and some other laggards. We have the opinion that we have prob ably seen most of the decline in interest rates that we Are going to for the next six to nine months commented Terry Ellis managing director of the criterion invest ment management co. In Houston which handles about $8 billion in its fixed income portfolios. He said that he expects some signs to emerge of a stronger Economy which would tend to give some upward push to interest rates As credit demands increase. Ellis was Quick to add As other managers did that he still expects the Bond Market Outlook to remain positive. Our longer term View is unchanged from what it has been for the last four years we believe we re still on the virtuous Side of the Cycle but in any Cycle you have interruptions which is what we have now he said. The principal influences driving this historic rally have been the tumbling inflation rate aided by falling Oil prices the weak Economy and a Large amount of buying by foreign investors especially the japanese. All of these factors have tended to lower interest rates which sends Bond prices up Ward. We have been and continue to be bulls commented Spiro vice chairman of Security Pacific investment managers a unit of Security Pacific National Bank in los an Geles. He added basically we think the Economy is in a slow growth Mode. With Oil and other commodity prices falling we Don t see a return to High inflation. There will be a Long term Down Drift in interest rates and we Don t see anything on the Short term horizon to change  even so Spiro said recently his funds have been switching about $200 million of the $5 billion in Bonds they manage out of Long term Treasury Bonds into intermediate term securities with a maturity of about 10 years. To be sure there Are some who think that Selling Long term Treasury Bonds is Short sighted. Michael h. Sherman chairman of the investment policy committee at Shear son Lehman Brothers said i think that there s no basis for making a move out of Long term Bonds unless you re just willing to speculate that rates won t Rise much in the next five  he added some people May be worried Here but that is Why this rally is so utterly fantastic. It has caught people Short. Sure we May have levelled off this week but i Don t think you can say it s a  All together now a photo workers at the new Stock Exchange of Hong Kong which combines the City s four individual exchanges under one roof Are arranged at their com Puter terminals at the Start of the Trad ing Day. Stock pulse by United press International c 1986 Friday april 11, 1986 nose composite most actives by volume Stock div vol close earns be old Avistar 5,171,700 10% $ 4.96 2.0 Wlker 4,221,800 27% 5.3 Texaco 2,513,100 32% 4.64 7.0 9.2 ism 2,224,700 1493/4 10.67 14.0 2.9 at to 1,929,100 22 a 1.37 16.0 5.4 Disney s 1,924,400 403/4 1.3131.0 0.8 Gerber 1,847,900 51 i 2.48 21.0 2.6 Sperry 1,803,700 55vi 0.69 80.0 3.5 Johns no 1,689,800 62 3.36 18.0 2.1 Revland 1,355,300 46 3.60 13.0 3.2 nose composite largest net changes Stock close Cage earns be old Cap Iii 215 /4 -\3v4 $10.87 20.0 0.1 null or 96 a 7va 6.90 14.0 4.2 Brit Tel 38 5% 1.78 21.0 3.2 Pennzoil 51 vie 4% 2.20 23.0 4.3 lbs 134v4 3 /2 4.93 27.0 2.2 Gerber Slva 3% 2.48 21.0 2.6 Romh 96vi 3vs 6.02 16.0 2.3 Alap pf9.44 104 a 3 9.1 merc St 89 to 2% 6.95 13.0 1.7 digital ept 169 2 a 6.54 26.0 amex composite most actives by volume Stock div vol close earns be old dome Pedro 1,071,10017-16 Turnr b pea 980,800 8 /4 Bat 835,300 69-16 $0.66 10.0 2.7 Wickes 643,600 6 /4 0.11 57.0 Resor Lintl a 562,700 67 a taped 472,900 14 1.1 wangle 341,500 18 a 0.9 am into 329,400 7 0.33 21.0 Lionel 227,900 8% 2.33 4.0 Lormar Tel 222,300 27% amex composite largest net changes Stock close Cage earns be old resort nil a 67 17% resort nil b 69 16% $0.75 920 new Widlic s 18% 2% 0.40 46.0 Blo alb a 28 2 / 1.18240 get Lech 393/4 2 a 1.93 21.0 1.3 Alza a 42% 1% 0.38 112.0 Turnr rdc 22% p/4 0.79 280 stash 88 l a 6.76 13.0 18.8 forded 126 i i 11 1 care a 20 l a 0.95 21.0 0.5 be Price to earnings ratio old dividend yield de deficit St yield in Stock x sex dividend earnings latest 12 months unaudited