In the early 1970s a widely publicized list of the "Nifty Fifty" stocks was drawn up. This list, which included Avon Products, Polaroid, Coca-Cola, McDonald's, Walt Disney, American Express, and Xerox, was touted as a set of "good buys." Most of the firms traded at high multiples. Their PIE ratios were as high as 70 to 90, with an average of 42, while the S&P 500 traded at a multiple of 19 times earnings. Burton Crane, a New York Times reporter, wrote the famous words at the time: "Xerox's multiple not only discounts the future but the hereafter as well," Unfortunately, many of those Nifty Fifty stocks lost considerable value in the subsequent 1970s bear market. Avon's stock fell 80 percent, as did Polaroid's. Coca-Cola, IBM, and Xerox fell dramatically. The multiples of the Nifty Fifty in 1972beara strong resemblance to those of the "nifty" technology stocks of the late 1990s, and indeed to those of mature "quality" firms such as Coca-Cola, General Electric, Pfizer, Merck, and Watt Disney (all of which were in the original Nifty Fifty of 1972). Morgan Stanley published a new set of Nifty Fifty stocks in 1995 that included these stocks. Here are some of the firms with high earnings multiples in September 1999, with their per-share price sat that date:

Track the return to these stocks from October 1999. You might use a price chart that tracks stock splits (for example, Big Charts at www.bigcharts.com). How have these nifty stocks fared? Here are some less nifty stocks at the time, all of which were in the S&P 500. They have low P/E ratios.

How have these stocksfared?

Transcribed Image Text:

P/E Price per Share (S) Microsoft (MSFT) Deii Computer (DELL) Lucent Technologies (LU) America Online (AOL) Analog Devices (ADI) Mattel (MAT) CBS Corp. (CBS) Cisco Systems (CSCO) Home Depot (HD) Motorola (MOi) Charles Schwab (SCH) ime Warner TWX 54 70 75 168 65 72 72 110 51 95 56 185 90 64 104 56 21 46 68 69 87 34 61 P/E Centex (CTX ITT lndustries (TT) Seagate Technology (SEG) U.S. Airways (u) Conseco (CNC) Hilton Hoteis (HTL) Price per Share (S) 28 32 30 26 20 10