That is a good column. Here is an excerpt: Even stocks that have reported extremely strong fundamentals have taken it on the chin. Applied Micro Circuits (AMCC, news, msgs) has fallen from $107 in September, to about $70 recently despite reporting better than 200% earnings-per-share growth in its September quarter. Why am I belaboring this point? Doesn't most any investor know from bitter experience just how difficult it’s been this year to put a price on anything in the technology sector?
I’ve got two pretty strong reasons. First, I think that the sector is poised for a decent rally from the Nov. 13 low. Money that has been sitting on the sidelines while Gore and Bush battle it out in Florida is seeping back into the market as investors acknowledge that there will be an end to this contest. With prices down enough to encourage bargain hunters and the traditional year-end buying season upon us, I think we could easily bounce back to 3,500 and maybe even 3,700 on the Nasdaq. With a rally a distinct possibility,knowing what a stock might be worth on the upside is fairly important. Second, I don’t think this rally will hold, and I believe we’ll revisit the low that we saw on Monday. Maybe we'll even retest the September/October 1999 low near 2,600 before we put in a real bottom on the bear market that has gripped the Nasdaq since March. And if this rally fails and some technology stocks are headed for new lows, it’s important to know how low those might be. That would seem to leave an investor trapped between a rock and a hard place. Successful investing in this market seems to require accurately valuing stocks. But this market and its volatility make that extremely difficult.
Well, as my grandmother always used to say, when they’ve dealt you a rock and a hard place, put a value on each and use the range to calculate the potential risk and reward in a stock. In other words, with such distinct tops and bottoms of valuation, do a best-case/worst-case valuation for a stock and see how much potential risk you’re taking on for how much potential reward. moneycentral.msn.com |
