Maybe there is hope after all for my Aug 60 AOL Puts.
Copied from Barrons
The whole ``momentum'' business, frankly, also bothered the heck out of us as a
manifestation of a wildly speculative strain in the market. Here, too, we've come to
recognize the perversity of our view. The momentum stocks demonstrate not
pervasive animal spirits but something very much different: the presence of investment
visionaries able to peer far into the future and discern how much a company will earn
decades, even half a century, from today.
America Online is a striking case in point. By some pitifully archaic measures, the
shares seem a mite rich. But consider, as we have, the compelling logic of paying 80
times next year's earnings for a company that has to its credit one whole quarter in the
black (two cents) if you're a far-sighted investor who can pinpoint profits for the
company, as the momentum visionaries can, 10 years down the road.
Or, to use a trendier measure, consider the compelling logic of paying 40 times fiscal
'98 EBITDA (earnings before interest, taxes, depreciation and amortization) for
America Online, which, as one savvy analyst has noted, compares with the 20 times
EBITDA Time Warner paid for Turner Broadcasting, or 14 times EBITDA Walt
Disney paid for Cap Cities, or 8.7 times EBITDA Microsoft paid for its stake in
Comcast. Turner and Cap Cities and Comcast, of course, as Mr. Savvy Analyst
observes, were encumbered by long operating histories, so they couldn't possibly
prove as attractive to a visionary as America Online. |
