Cisco(CSCO) - General Electric (GE) - Hewlett- Packard (HPQ) - Intel (INTC) - Microsoft (MSFT)

Gregory Spear, editor of The Spear Report newsletter, explains that investors are experiencing an environment that partly resembles the late 1990's and echoes a group of former bull market leaders in the late 1960s and early 1970's known as the Nifty 50. Read about these stocks and discover the new “nifty” 30. Then check out some of the holdings on this featured expert's Consensus Buy List. Detail from October 6 Last week Gregory Spear and his team discussed the recent outperformance of the large-caps and speculated about the possibility that the 6-year reign of small-cap leadership could be in danger. Although it still is too soon to call a significant turn in this long-term horse race, the action in the market in the past week is adding incremental confirmation to Spear and his team's hypothesis. Last week they compared the performance of the S&P 500 to the Russell 2000. This week they show a chart of the Dow vs the Russell over the last three years. It suggests a similar shift of emphasis. With stocks like Cisco (CSCO), General Electric (GE), Hewlett- Packard (HPQ), Intel (INTC) and Microsoft (MSFT) leading the market higher, we are experiencing an investing environment that partly resembles the late 1990's. It also echoes a group of former bull market leaders in the late 1960s and early 1970's known as the Nifty 50. These companies were the buy-and-hold favorites of the day, as they had dominance in their industry with popular brands, unassailable patents, top flight management, unstoppable sales growth and steady profits and dividends. They were “nifty” because they supposedly took the thinking out of the investing equation and they were valued accordingly. Nifty 50 stocks sold at an average P/E of 37 versus a market multiple of 18. (At the height of the Nifty mania in 1972, however, Polaroid briefly flashed a trailing P/E ratio of 93.) The bear markets of 1969-1970 and 1973-1974 shook investor's confidence in these companies temporarily, but the fundamentals of their business models really did give most of them a lasting advantage. Many went on to make new all time highs once the bull market began in 1982. The Nifty 30 The Dow Jones 30 Industrials has become the new “nifty” group, as reflected in its new all-time highs this week. Many of the former members of Nifty 50 have survived and are current members of the Dow Jones 30 Industrials. They are: American Express (AXP), p/e 20, Coca Cola (KO), p/e 21, Disney (DIS), p/e 21, General Electric (GE), p/e 22, Gillette (now part of Proctor &Gamble-PG) p/e 24, International Business Machines (IBM), p/e 15, Johnson & Johnson (JNJ), p/e 17, 3M (MMM), p/e 17, McDonald's (MCD), p/e 18, Merck (MRK), p/e 16, Phillip Morris/Altria (MO), p/e 14, Microsoft (MSFT), p/e 23, and Pfizer (PFE), p/e 19. Interestingly, the P/E ratio of these companies on average is somewhat higher than the market, but not double that of the market like it was in former days. They are not (yet) wildly over valued. Of these survivors, only AXP has managed to make new all-time highs along with the Dow this week. What does that tell us? AXP is a financial services company for the well-heeled consumer, and the wealth effect both from stocks and real estate over the last 25 years is still intact. MO has also outperformed the pack, setting new highs over the last 20 months. MO's outperformance is testimony to the timeless power of addiction. Of course, it is also testimony to the company's ability to cultivate new markets (youth), to lie (see the recent rulings that it deliberately made “light” brands more dangerous, not less) and to shift to less regulated and less educated markets (developing nations) in its unending quest to sell deadly products designed to be more and more addictive all the time to those who are most vulnerable. (Shame on us all for putting up with it.) But there are other themes of note. Besides AXP and MO, the Dow members who have made new all-time highs in 2006 are Boeing (BA), Caterpillar (CAT), Exxon (XOM), Proctor and Gamble (PG) and UTX (UTX). Sector-wise, we have two consumer names, two defense contractors, the largest energy company in the world and the largest infrastructure-related company in the world. Their leadership makes sense in a world of increasing population, emerging economies, global tensions and an energy crunch. In addition to investing in companies like AXP that benefit from the wealth effect, long-term investors would do well to keep these themes in mind. Balancing Act The fact that very few of the Nifty 30 are making new all-time highs along with the DOW average is something worth pondering. That circumstance can be interpreted two ways, depending on one's bias. On the one hand, it might be taken as a bearish indicator, since 80% of the Dow is not “confirming” the new highs. On the other hand, it suggests that the Nifty 30 have plenty of room to run before becoming excessively overbought as a group. Spear and his team do not know yet whether capital will start flowing from Main Street to Wall Street as the real estate market cools, but they do know that the “buzz” about the Dow setting new all-time highs is considerably lower in decibels than it was six years ago. Taxi drivers are not passing along stock tips and making trades on cell phones. Celebrities are not ringing the closing bell. From a contrary perspective, that is also a positive. Bull markets do best when they have a Wall of Worry…or skepticism… or even indifference….to climb. Part of the anti-climactic tone also has to do with the fact that the Dow would need to run about 15% higher than it is today to make up for inflationary losses over the last six years. It will likely take a much longer run into uncharted territory before the Comeback Kid will rekindle the fancy of the populace at large. That said, as long as fund managers have new capital to deploy, a significant part of it is likely to be directed toward these Nifty 30 names. There will be competition for capital from certain emerging markets, however, but of the major world players only the Hong Kong stock market has been able to make new all-time highs along with the Dow. That suggests that the U.S.-China axis, which has been the main engine of global growth over the last four years, is alive and well. Consensus Buy List Flextronic Intl. (FLEX) is a leading provider of advanced electronics manufacturing services to OEMs primarily in the telecommunications and networking, consumer electronics and computer industries. The company's strategy is to provide customers with the ability to outsource, on a global basis, a complete product where the company's take responsibility for engineering, supply chain management, assembly, integration, test and logistics management. The company provides complete product design services, including electrical and mechanical, circuit and layout. Standard PAC (SPF) operates primarily as a geographically diversified builder of medium-priced single-family homes with a majority of its operations in California. In addition, Co. assists homebuyers in obtaining financing for home purchases through Standard Pacific Savings. Co. is also engaged in the manufacture and marketing of moveable and acoustical office partitions and office furniture. CMI Cummins Inc. (CMI) is one of the leading worldwide designers and manufacturers of diesel engines. The company also produces natural gas engines and engine components and subsystems. Cummins provides power and components for a wide variety of equipment in its key businesses: engine, power generation, and filtration. This article highlights the commentary of Gregory R. Spear for the Zacks.com audience. Gregory R. Spear provides insightful analysis, market commentary, and favorite recommendations on a timely basis in "The Spear Report" newsletter. Try it free for 30 days and see if you can improve your investment performance. Learn more about "The Spear Report" and 30-Day Free Trial. And get immediate access to current issues and special reports. Click here now. Here's How You Can Profit from the Pros Find out what other leading experts are saying about the market. And what stocks they are recommending. For free. Just sign up for our free email newsletter, Profit from the Pros, where we'll give you the commentary, advice, and insight from those rare few experts who consistently beat the market year in, year out. | Blog Home| VitalStocks Home Tags: CMI, FLEX, SPF, CSCO, GE, HPQ, INTC, MSFT, Stock-market, Stocks, Investing, Stock Trading, Business, Finance, Trading, Investing Newsletter, Stock Picks, earnings, analysts, analysts estimates