Twister:
If you're looking for me to sit down in a comfy armchair with brandy and cigars across from the ghost of Ben Graham, and on his turf using his formulas come up with a defense of SUNW's market cap, you've come to the wrong guy. I can't do it, and neither, as far as I know, can anyone else, except with slogans about 'new eras' that make no more sense to me than the Mythsters' voodoo triangles and endless side-by-side 1929-1999 lists and ho-ho-ho's and "We CRASH on Tuesday". All of it's horsesh*t in one way or another.
My question to you is: what do you want me to do? JC jestingly says 'are you pitching us bonds'. Well guess what: I'm in bonds, just like I'm in MSFT (which I suspect Benjamin Graham would look pretty much askance at also).
I puke just like most people when I hear what Fleckstein calls 'dead fish' on Wall Street trotting out fantasy equations to account for valuations that can't be accounted for.
Here's what I basically know and act on:
1) A 'new era' in stock valuation may not be upon us, but a new era in computing infrastructure most definitely is. Bandwidth changes everything, which is another way of saying 'the network is the computer' (plus a few other things).I'm no financial wizard, but I flatter myself that I know the computer business. Sun is proving every day that they are far and away the best computer company on the planet. Recent developments make me think that the rest of the industry is going to wake up one fine morning to find themselves playing a game of frantic catchup to SUNW that they still at this very late minute don't see coming, including IBM, including HP.
2) This means that I strongly believe that SUNW will experience sharp revenue growth over the next five years, even to the point of making current valuations look less insane to Grahamites. There is no logic to the market; it undervalues many stocks and overvalues a few. I happen to believe, based not on any dead-fish formulas or emotional states but on my own picture of the computer-communications-dataflow industry, that SUNW is less overvalued than other such stocks.
3) I firmly believe that Microsoft's days are numbered. The old roadrunner metaphor of the coyote that runs over the cliff but keeps his legs churning hopefully and doesn't fall until he looks down, applies to MSFT. It boils down to this simple fact: in 90% of cases today, if you're developing an application meant to reach any sizable number of users, and you're not Microsoft, you're going to think, 'Wait, why wouldn't I develop this as a web appplication?' It's that simple. That blows MSFT's model out of the water. Win32 is an asset that is already becoming a liability. They know it too.
4) SUNW does not deal in commodities. It deals in innovation. Not screwdriver innovation like DELL (which really is tremendously overvalued), but technical innovation based on vision. Let's talk again in a year or so and see what effect Jini, SunRay, Java et. al. have had on Sun's bottom line. It will come mostly in the form of increased server, storage, software and services sales, not in three-cent Java licensing fees. That's the idea. The complete solution that Sun is putting together is not a commodity. You're kidding yourself if you think it is.
That being said, a P/E this high makes me nervous, and IMHO anybody who is not made nervous by it is crazy, because it puts the stock at the mercy of too many variables, local and international, over which Sun management has no control. (In spite of the fact that SUNW has weathered recent volatility glitches rather well).
But SUN has been one of the very best investments over the last five years (and that is not open to debate) not just because of "clowns" and "J6Ps" putting their poker money into it, but because its vision and execution is letting Sun take center stage in a major paradigm shift. Not the securities market paradigm shift that the Mythsters rightly ridicule, but an information-based cultural/industrial paradigm shift that is undeniable. I believe the market is to some extent discounting that position in SUNW's case. You phrase it one way "40 points of Java and Jini in the stock". I phrase it another way: "25 points of recognition of future pre-eminence in the stock." If you have to own a high P/E stock, SUNW is the one to own IMHO.
I doubt somehow that will convert you, Ben's ectoplasm, or Buffet, and the Dellsters and MU defenders would probably sing their own versions of the same song. But that's my rationale and I'm sticking to it...cause in my case, I'm right<g>.
Regards,
--QwikSand |
