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SIVY ON STOCKS from money.com
November 15, 2000

The ultimate election play

The timely case for Diebold, a leading maker of bank ATMs and high-tech
voting machines. Plus the latest non-events at the Fed and responses to
reader comments.

By Michael Sivy

Dimpled and pregnant though they be, the hanging chads are swinging once
again. Now it looks as though the legal terrain is favoring Bush. I've
written about the consequences to stocks of a Bush victory (see "Election
correction" [
http://www.money.com/money/depts/investing/sivy/archive/001103.html ] ),
and I've considered the implications of a Gore victory (see "The tech wreck
continues" [
http://www.money.com/money/depts/investing/sivy/archive/001113.html ] ). I
want to appear timely, but I'm running out of scenarios (Nader or Buchanan?
That's a bit far-fetched). Still, there may be money to be made on this
mess, and I cast my vote for Diebold, a mid-cap Ohio company.

I last recommended Diebold [DBD], the leading U.S. producer of bank ATM
machines, in early February, when it was trading at $22 a share ("see "Deja
vu") [ http://www.money.com/money/depts/investing/sivy/archive/000202.html
]. At the time, the company had just come off a string of bad news: The
Asian financial crisis in 1998 had crimped foreign sales, and Y2K fears
(remember them) hurt sales in the second half of 1999. Plus, all the bank
megamergers, which resulted in many branch closings, cut into domestic
business. Nevertheless, Diebold's earnings have steadily risen, and the
stock is up to $28.75, a 30% gain since February.

Here's the election play: Through its Brazilian subsidiary, Diebold also
makes voting machines. In October, some 100 million Brazilian voters cast
ballots using Diebold terminals, which promise speedy, accurate results and
claim to eliminate confusion (the terminals also come in special versions
for the physically challenged). So when U.S. state and local governments
start rushing to upgrade their voting machines, who could be better
positioned than Diebold? With annual earnings growth projected at 13% over
the next five years and a 2% yield, Diebold trades at 14.5 times this
year's estimated earnings and 12.8 times next year's projected results.

        *       *       *

The Federal Reserve Open Market Committee met today to consider changing
its interest rate policy. The FOMC not only kept rates unchanged, it also
maintained a tightening bias -- that means the Fed is still allowing for
the possibility of raising interest rates. It would do so to fight
inflation, which remains a threat largely because of the tight labor market
(with unemployment below 4%) and the runup in energy prices. But if the
economy continues to slow, Fed-watchers think the FOMC could go to a
neutral stance in December and start cutting rates early next year.

        *       *       *

I have received more e-mail than usual in response to recent columns (my
thanks to everyone who sends stuff in), and I'd like to respond to two
particularly pointed comments.

First, I'd like to clarify my piece from October on stock options (see "The
right way to use stock options"). I do not advocate options trading for
individual investors. I think most people should concentrate on stocks,
bonds and mutual funds and leave options and futures to professional
trading desks. The nature of the market causes options to be consistently
overpriced, so it is generally a bad choice to buy options. That said,
there may be an advantage to selling them. Typically, small investors can
do this most safely by selling call options on stocks they already own when
that boosts their profit potential. But as some readers pointed out, you
can still lose money on such "covered writes" if the stock drops enough.

Second, I am not, as some readers have suggested, a shameless apologist for
the Democratic party. I think investors should consider the market impact
of political developments in as detached a manner as possible. I have,
however, enjoyed telling my colleagues that I am viewed online as a crazed
liberal.

###

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http://www.money.com/depts/investing/sivy/index.html

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