ARM Holdings Handed In Large Gains.(THE SMART INVESTOR)(WINNING WAYS)

Byline: KEN HOOVER

Telecom was among the hottest sectors in the bull market that ran from October 1998 to March 2000. One of the biggest winners was ARM Holdings, a British company that makes chips for cell phones, modems, cars and TV set-top boxes. It had a lot going for it. Earnings the four quarters before its first breakout rose 20%, 86%, 67% and 23%. Sales grew 325%, 70%, 54% and 76%. The five-year growth rate was 25%. The P-E ratio was 113. Four other stocks in ARM's industry group had Relative Strength Ratings above 90, a sign of group strength. The Earnings Per Share Rating was 94 and the Relative Strength Rating was 93. The Accumulation/Distribution Rating was B. ARM went public in April 1998. Its chart shows why you shouldn't buy on the first day a stock trades, even if it's the stock of a great company. ARM traded as high as 44.25 the day it went public, then dropped to 35 within three weeks. New issues can make great investments. But buy them only after they've set up in a sound base. Investors got their first chance to get into ARM when it broke out of a 15-week base on Dec. 8, 1998 (1) (shown on weekly chart). The new bull market was not quite two months old. The base was a perfect cup with handle. The volume dried up as the stock moved in a tight range for four straight weeks (2). And the two-week handle had almost no volume (3). ARM was flying under most investors' radar.

In fact, the trade was lighter than you might like, averaging only about 30,000 shares a day.

ARM ran ...