Feb

1

The understoryThe Bronx Botanical Gardens has a nice exhibit of the four layers of life in a tropical rain forest: the emergent at the top that get most of the sun, the canopy, where most of the trees reach and where insects and birds are mainly active, the understory, clouded in shade, and the floor, where the debris falls and provides minerals for the roots of trees and food for large animals and insects. One wonders if the ensemble of stocks is divided into similar layers, and whether there is anything predictive about those that reach a certain height. Let's start with the S&P 500 and look at the emergent layer, stocks above 100. There are 12 of them:

Name    Price  Market value m   Perf in 2009                                 

AAPL    192         174161                  90                                 

AZO      155         7673                     59                                     

CME      286         19079                   65                                       

FSLR     113          9462                   -20             First Solar                

GS       148         78572                     81                                        

GOOG     529     168135                    56                                          

IBM      122        160771                    33                                       

ISRG     328        12631                   218             Intuitive Surg               

MA       250         32425                     84             Mastercard             

PCP      105         14811                    62              Precision cast parts       

PCLN     195          8585                    191             Priceline                   

WPO      434         4085                    11               Washington Post   

What can be said about these companies that differentiates them? Five of them are Internet based. All of them are undoubtedly led by CEOs who embody the idea that has the world in its grip. What else?

A comparison with the understory below 10 is appropriate. AMD, BSX, CPWR, ETFC, EK, FTR, HBAN, IPG, JDS, KEY, LSI, MI, PCS, MU, MOT, NOVL, ODP, RF, S, TLAB, THC, TER, XRX — twice as many companies in the understory. Many were once in the canopy. How would this best be analyzed and something useful come out of it?


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