Neil Macneale's
Stock Split
Newsletter
Volume 5 Issue 3
2 for 1
www.2-for-1.com
The Whole is
Greater than the
Sum of the Parts
R
March 17, 2000
MUSINGS OF THE EDITOR
THIS MONTH’S BUY
Strategy Affirmed
Cisco Systems
I
have good news for those who
are wondering if the 2 for 1
investment strategy still has validity in light of its recent so-so performance. David Ikenberry, the
author of the study that originally
sparked the idea for this newsletter, recently sent
me a working paper, not yet published, that
confirms the conclusions of his study published
in 1996. Prof. Ikenberry and his team of graduate students at Rice University have been interested in the "underreaction" of the market to
various corporate news events for some time.
Their 1996 study used data on 2 for 1 stocks
splits announced from 1970 through 1990. This
latest paper looks at all stock splits announced
from 1988 through 1997. It states, "the drift
following a split announcement during the
1990s is strikingly similar to results reported in
other studies for earlier time periods. Over the
year following a split announcement, the mean
abnormal return for sample firms is 9%." For
the man on the street, "mean abnormal return"
is the out-performance of split stocks versus a similar group of companies not splitting. In other words, the stocks that were page
split during this ten year period, on average over the first year after the split, did
page
9% better than those that didn't.
The control group used for comparison was made up of companies that page
matched the splitting (continued page 2)
S
ince the inception of the 2 for 1 newsletter
in August of 1996, Cisco Systems has split
3 for 2 twice and 2 for 1 twice, including the
split just announced. It had also split 2 for 1 in
early 1996, just before the newsletter got off
the ground. This signal can no longer be ignored,
no matter what the PE ratio.
Cisco makes the hardware that handles the
switching of the billions of signals that travel
over the "backbone" of the Internet every
minute of the day and night. Access to the Internet and active use of the Internet by businesses and individuals will be as important to
us in a few years as are the telephone and television today. Cisco has a huge market share when
it comes to the equipment that actually runs the
Internet. The growth of this company, even if
it is volatile, has the potential to continue in the
double digits for years to come. Cisco runs a
series of promotions on public TV showing the
wonderful variety of people around the world
who are now connected to the Internet. I join
them in asking the question, "Are you ready?"
Inside This Issue
2 This Month's Sell
February Splits and Rankings
3 Portfolio Management
Portfolio Performance
4 February Portfolio Statement
2 for 1
March 2000
THIS MONTH'S SELL
FEBRUARY SPLITS AND RANKINGS
First Union Corp
I
t was with some relief that we shucked off
our position in First Union at the start of
the month. FTU was sold at $30.50 on 3/2/00.
This was a stock that proved the disclaimer,
"Past performance is no guarantee of future
results". When we bought in at $47.22 (split adjusted) in July of 1997, FTU had all the right
stuff. Its growth-through-acquisition strategy
had created the nation's 6th largest regional bank
seemingly destined for continued success. However, the buyout of CoreStates Financial at the
end of 1997 proved too big a pill to swallow
and performance through 1998 and 1999 was
disappointing. Our net, including costs and dividends, was -26.22% or -10% per year.
EDITOR (cont.)
firms on the basis of market-cap, value/growth,
momentum and nominal share price. Although
not stated explicitly in either the earlier or more
recent study, I have taken this "control group"
to be a proxy for the entire stock market. Our
strategy says if you invest only in companies
that have recently announced splits, and if you
have a diversified portfolio "laddered" through
time, then you should do better than the market as a whole.
Our performance proved this out for the
years 1992 through 1997, then fell short in 1998
and 99. The lapse over the last two years is more
due to my reluctance to get on the technology
train than on the failure of the basic premise
of our strategy. For me, Ikenberry's work confirms that, if your portfolio is essentially an index fund reflecting the market in all respects
except that it is made up solely of split stocks,
then you should do better than the market.
Hi-Tech Rules
T
he crushing predominance of the high tech
sector in February's list is remarkable. See
page 1 regarding Cisco. For those who still prefer "old economy" stocks, Harley Davidson
would be our choice. The Nasdaq 100 index,
or QQQ, sold on the American exchange, was
not rated because this is not really a stock. However, if you want an easy way to diversify among
all the Nasdaq high fliers with a vehicle that
acts like an index mutual fund, this would be an
excellent choice.
SYMBOL COMPANY
CSCO
HDI
BFRE
DISH
LHSP
NXTL
SFA
SMTL
ADI
ADIC
ADVS
AGIL
ALKS
AMAT
ARTG
ASDV
BEAS
BRCD
CTSH
ELNT
HAUP
INFA
MLNM
MVSN
NTAP
NXLK
PCLE
PUMA
RMD
TERN
TEVA
TLGD
VERT
CYSV
DIYS
EVRC
KILN
ENVK
QQQ
Cisco Systems
Harley-Davidson
Be Free, Inc.
EchoStar Communication
Lernout & Hauspie
Nextel Communication
Scientific-Atlanta
Semitool
Analog Devices
Advanced Digital
Advent Software
Agile Software
Alkermes
Applied Materials
Art Technology Grp
Aspect Development
BEA Systems
Brocade Communication
Cognizant Tech Sol
Elantic Semi
Hauppauge Digital
Informatica
Millennium Pharma
Macrovision
Network Appliance
NextLink Commun.
Pinnacle Systems
Puma Technology
ResMed
Terayon Communication
Teva Pharmaceutica
Tollgrade Communication
VerticalNet
Cysive, Inc.
DiaSys Corp.
Evercel
Kirlin Holding
Envirokare Tech
Nasdaq 100 Tracking
SPLIT DATE
3/22/2000
4/7/2000
3/8/2000
3/22/2000
n/a
6/6/2000
3/27/2000
3/28/2000
3/15/2000
3/13/2000
3/13/2000
3/16/2000
5/12/2000
3/15/2000
3/24/2000
3/10/2000
4/24/2000
3/14/2000
3/16/2000
4/21/2000
3/24/2000
3/6/2000
4/18/2000
3/17/2000
3/22/2000
6/15/2000
3/24/2000
3/22/2000
3/31/2000
n/a
3/24/2000
3/20/2000
3/31/2000
5/8/2000
n/a
3/21/2000
3/1/2000
3/6/2000
3/17/2000
RANK
1
2
3
3
3
3
3
3
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
5
5
5
5
NR
NR
Rankings: 1 - buy now, 2 - 2nd choice, 3 - outperform, 4 - market
perform, 5 - not suitable for 2 for 1, but may include special situations, NR indicates no rank due to lack of stats, very small size, etc.
Page 2
2 for 1
March 2000
PORTFOLIO MANAGEMENT
PORTFOLIO PERFORMANCE
More Balancing
A
s recently as January we had to sell a portion of our American Power Conversion
because it had grown to over 7% of the portfolio and, concurrently, we needed to boost the
cash position a bit to be able to afford our normal monthly stock purchases. Early this month,
we found our APCC has again climbed to over
7% of the portfolio, joined now in the +7%
range by Sun Microsystems. In the next issue
of 2 for 1, you will see that the portfolio statement for March shows the sale of 20 shares of
Sun and 50 shares of APCC. This time, we were
not compelled to sell these shares to raise cash.
Instead, it was felt that "taking profit" from
these positions would be a good hedge against
a possible downturn in the high tech sector, and
was necessary to bring the weighting of the
positions into our preferred 2% to 5% range.
As a further hedge, the cash raised from
these sales was put into three of the most beaten
down of the "old economy" stocks already in
the portfolio; Lockheed, Greenpoint, and Lincoln National. These companies are now selling at close to, or even below book value and,
as a result, their fundamentals look terrific. By
boosting the number of shares in each of these
companies, we are in effect, "dollar cost averaging" our basis in these shares and, as with
Sun and APCC, bringing these positions more
into balance with the rest of the portfolio.
2 for 1 is published and distributed by Neil Macneale, Inc.
140 O'Connor Street, Menlo Park, CA 94025. Toll free
888-775-4824 Fax 650-903-9641 e-mail splits241@2-for-1.com
Neil Macneale, Inc., dba 2 for 1, is not a broker and does not offer
individual advice. 2 for 1 is published on the Friday of each
month closest to the 15 th of that month. Contents are copyrighted
but may be copied or quoted if attributed to the source.
2 for 1 subscription rate = $7.50 per month, payable by monthly
dedit from a VISA or Mastercard one week prior to publication
1600
2 for 1
1000
S&P 500
400
1993
1994
1995
1996
1997
1998
1999
The 2 for 1 portfolio shown above was adjusted
to equal the S&P 500 at the end of July, 1992.
The S&P 500 tracks the 500 largest U.S. companies and is an index. 2 for 1 tracks an actual
portfolio of only 30 companies, large and small.
See page 4. The 2 for 1 portfolio may be more
volatile than the S&P 500. Many mutual funds
use the S&P 500 as a performance benchmark.
Ups
T
he portfolio's two superstars, APCC and
SUNW scored 23% and 21% gains in February. Dallas Semiconductor, owned for less
than a week, gained 18%. In all, nine of our
stocks were up for the month. We beat the S&P
500 for February, losing only 0.4% while the
index was down over 2%.
and Downs
S
tocks fell over a broad front in February, with
the exception of the tech sector. Our portfolio followed suit with twenty-one declines out
of thirty. Lincoln National defied all conventional behavior, dropping 25% after reporting
record sales and strong growth. This company
is now selling for just over book value and at a
PE of around 10. (See adjacent article) Bergen
Brunswig lost another 24.8% giving us an overall decline of 78% for this stock. Unlike LNC
above, Bergen Brunswig's business is deteriorating and this stock is not likely to recover.
Page 3
2 for 1
March 2000
2 for 1 MODEL PORTFOLIO - FEBRUARY STATEMENT
# SH
BOUGHT
40
40
100
100
160
80
78
190
70
60
100
135
185
110
200
100
65
40
170
140
50
55
100
60
140
60
40
100
40
80
07/22/97
08/19/97
09/16/97
10/21/97
11/18/97
12/16/97
01/21/98
02/17/98
03/17/98
04/21/98
05/19/98
06/18/98
07/21/98
08/19/98
09/22/98
10/20/98
11/17/98
02/17/99
03/16/99
04/20/99
05/18/99
06/22/99
07/20/99
08/24/99
09/21/99
10/19/99
11/16/99
12/21/99
01/19/00
02/23/00
CASH
FTU
TX
HRS
FUN
KBALB
MEA
SBC
EGN
GPT
GD
NSP
STR
FPU
SVU
CNB
BBC
LMT
INTC
APCC
STC
FON
LNC
NCC
TRB
ROST
SUNW
AOL
BELFB
MWD
DS
FIRST UNION CORP
TEXACO
HARRIS CORPORATION
CEDAR FAIR, L.P.
KIMBALL INTERNATIONAL
MEAD CORPORATION
SBC COMMUNICATIONS
ENERGEN
GREENPOINT FINANCIAL
GENERAL DYNAMICS
NORTHERN STATES POWER
QUESTAR
FLORIDA PUBLIC UTILITIES
SUPERVALU INC
COLONIAL BANCGROUP
BERGEN BRUNSWIG
LOCKHEED MARTIN
INTEL CORP
AMERICAN POWER CONVERSION
STEWART INFORMATION SVCS
SPRINT CORPORATION
LINCOLN NATIONAL
NATIONAL CITY CORP
TRIBUNE COMPANY
ROSS STORES
SUN MICROSYSTEMS
AMERICA ONLINE
BEL FUSE
MORGAN STANLEY DW
DALLAS SEMICONDUCTOR
QUOTE
AT
BUY
47.219
56.500
41.280
23.625
19.078
28.188
31.733
18.900
37.500
45.000
27.719
19.063
14.875
23.250
13.000
22.750
50.667
63.063
14.313
19.406
54.813
51.875
32.375
46.844
19.500
47.609
75.063
25.313
67.313
34.000
TOTAL CASH AND EQUITIES
QUOTE
ON
02/29/00
BASIS
29.500
47.438
31.875
18.438
15.188
29.938
37.750
16.250
15.938
43.250
17.563
13.938
14.500
17.188
8.875
4.938
17.438
113.000
33.938
13.688
61.000
27.625
19.250
38.938
14.500
95.250
59.000
18.125
70.438
40.375
1903.70
2274.95
3441.07
2377.45
3092.40
2269.95
2540.58
3591.15
2639.95
2714.95
2786.83
2603.39
2766.83
2572.45
2614.95
2289.95
3293.34
2542.45
2450.08
2731.83
2755.58
2868.08
3252.45
2830.58
2749.95
2876.51
3017.45
2551.20
2707.45
2734.95
81842.42
START
MONTH
557.92
END
MONTH
2325.29
% OF
PORT
3.08%
1337.50
2115.00
2900.00
1893.75
2450.00
2980.00
3344.25
3277.50
1386.88
2827.50
1925.00
2067.19
2890.63
1980.00
1900.00
656.25
1202.50
3957.50
4690.94
1846.25
3231.25
2031.56
2168.75
2531.25
1785.00
4713.75
2272.50
2100.00
2650.00
2734.95
1180.00
1897.50
3187.50
1843.75
2430.00
2395.00
2944.50
3087.50
1115.63
2595.00
1756.25
1881.56
2682.50
1890.63
1775.00
493.75
1133.44
4520.00
5769.38
1916.25
3050.00
1519.38
1925.00
2336.25
2030.00
5715.00
2360.00
1812.50
2817.50
3230.00
1.56%
2.51%
4.22%
2.44%
3.21%
3.17%
3.89%
4.08%
1.48%
3.43%
2.32%
2.49%
3.55%
2.50%
2.35%
0.65%
1.50%
5.98%
7.63%
2.53%
4.03%
2.01%
2.55%
3.09%
2.68%
7.56%
3.12%
2.40%
3.73%
4.27%
75616.04 100.00%
The above list represents all of the securities recommended and bought by 2 for 1 over the last two and one half years. It shall not be
assumed that recommendations made in the future will be profitable or will equal the performance of the securities on this list.
There were no changes in the portfolio positions in February except for the normal rotation of Marsh McLennan from the top of the
list and the addition of Dallas Semiconductor at the bottom. February interest was $16.37
and dividends totaled $161.36.
The 2 for 1 portfolio was started in July, 1996
with $50,000. The $81842 basis above reflects
the $31842 in capital gains, dividends and interest accrued since the portfolio's inception.
ACCOUNT VALUE SUMMARY - 2/29/00
Description
Last Month’s Closing Equity
Change In Stock Value
Interest and Dividends
This Month’s Closing Equity
Amount
75900.61
-462.30
177.73
75616.04
Securities Net Market Value
Closing Cash Balance
73290.75
2325.29
Page 4