Prime Stock Advisory Letter for December 1st, 1998

Position Statement: In our Prime Recommendation Letter we attempt to identify the recommendation with the highest probability of moving higher.  We recommend that stop orders be placed at the time of purchase,  and once the position has moved profitable we recommend a stop be placed a minimum of 3/8th above the purchase price and moved higher as the position moves higher.

Today's Comments:  The overall market moved sharply lower yesterday.  There was weakness across the board that affected all the sector indices I track.  It does appear that an over extended market is due for a correction.  I have been around the market for a long time,  and I have seen countless "Hot Market Sectors" run to astounding highs.  In recent history there was the biotechs,  gaming, multimedia, internet, internet, and the current internet issues.  The names continue to change to mask the fact that underlying facts don't change.  Look past the hype,  and what you have is a "new" industry with new revolutionary players doing something that has never been done before or in new unproven markets.  A lack of earnings is never a problem since they do not seem to matter.  So the next thing to do is to value these companies at a high multiple to sales.  And so it begins....................And goes on and on and on...........   I have watched many of these speculative runs and I have learned 3 things, maybe more, but anyhow.  3 important points for today.  A.) A stock does not necessarily move lower simply because its over valued.  B.) Stocks tend to go down twice as fast as they go up.  and finally  C.) just because a stock traded at a certain level in the past that is not necessarily any reason for it to ever to return to that level.  And then it happens.  The "shorts" have been screaming in pain as their short positions have created tremendous losses as they have made very solid cases for these stocks being over valued.  But nobody cares........  And then somewhere, someone at a firm with a recognizable name states the one thing that everyone seems all too willing to forget.   That earnings really do matter!!!  And these companies are not going to come close to making enough money in our lifetime to justify their current valuations.  Then they sell off,  or as we used to say a long time ago when I was a broker,  "Reality sets in!".  You never know when the end of a run will occur.  I generally tend to be on the cautious side,  so I alsways figure that I am late coming to the party and most likely I when I start buying the run will be over.  Afterwords there is usually an industry shake out where a lot of well know high flyers are gone.  And evan more importantly those companies that survive are those that can suceed in blending the more traditional lines of an older industry with the new emerging one.  I am willing to bet that in the world of Internet retailing the long term survivors will be those that can combine traditional brick & mortor retail sites with internet sales.  Well anyway back to today's market.  I think there is a good chance the market may lower,  but a note of caution.  Yesterday's decline left the upward trend in place on many of the indices I track and for the most part they only retreated to their 9 day moving average.  The Bottom Line:  The market should move lower.
 

Company:   Burlington Resources       Symbol: 'BR'        Closing Price: $35.69/share.
YH: $49.625    YL: $29.46    EPS: $0.68     P/E: 52.4     Forecasted EPS: N/A
Dividend: $0.55      Yield:  0.15%    Ex Dividend: 12/9/98
Price Target:  $30.875 & then $29.56     Upside Stop:  $37.625
Options Recommendation: December 40 Puts,  Symbol 'BRXH' @ $4.75/contract.

Company Description: This company is a major producer of natural gas.

Recent News:  11/30 Paine Webber cuts Burlington Resources to an Attractive from a Buy
11/11  BT Alex Brown cuts Burlington Resources to a BUY from a Strong Buy

Our Analysis: Burlington Resources is a component of the Amex Natural Gas Index 'XNG',  which I have rated as moving lower from its current levels.  The shares of 'BR' gapped lower on the open of trading yesterday.  They finished the day sharply lower on heavier than normal trading volume.  In the process they closed below a key support level.  The shares of 'BR' should continue to move lower and test $30.875/share,  the point from which they gapped higher in early September of this year.  If the shares close below that level then they should test $29.56/share,  the point from which they gapped higher in late August of this year.  Yesterday,  Paine Webber cut its rating on Burlington Resources from a "Buy" to an "Attractive".

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