Hard To Get A Handle On Compaq.(THE SMART INVESTOR)(WINNING WAYS)

Byline: KEN HOOVER

Compaq Computer was the world's biggest PC maker when a powerful new rally began in May 1997. It was one of the first stocks to hit a new high and became one of the new leaders over the next six months. Sometimes, stocks break out without forming handles, especially in the early stages of a potent rally. They're more apt to fail. But Compaq wasn't one of the failures. It topped 128% above its pivot point.

Compaq's earnings accelerated, up 8%, 42%, 40% and 60% the previous four quarters. Sales were up 14%, 25%, 15% and 14%. You would prefer to see sales up at least 25% the previous two quarters. The five-year earnings growth was 67%, while the P-E ratio was only 18. High Ratings

The Earnings Per Share Rating was 97. The Relative Strength Rating was 94. The Accumulation/Distribution Rating was B. The 50-day ratio of up to down volume was 1.5. The group Relative Strength Rating was 90, and five other companies had Relative Strength Ratings of 92 or better, among them two other successful PC makers, Dell Computer and Gateway. The return on equity was 24%, well above the S&P 500's average of 17%. Mutual funds owned 28% of the float. The Dow Jones industrial average and the S&P 500 had follow-through days on April 24, 1997 (1), signaling the end of a 10%, two-month correction. Compaq was nearly done building a 12-week base. It bounced off its 200-day moving average line (shown in the weekly chart as the 40-week line) (2) right at the bottom.

The volume built as the breakout neared (3). The pivot point was 87.88, the top of a previous high point.

After a five-week run-up, Compaq pulled back and kissed perfectly off its 50-day line (shown in the weekly chart as the 10-week line) (4). It was a second chance to buy and a sign of confidence if ...