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Biotech / Medical : Elan Corporation, plc (ELN)
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To: John Metcalf who wrote (2407)6/26/2002 12:47:26 PM
From: Czechsinthemail  Read Replies (1) of 10345
 
I agree that risk premium is an important issue, particularly in a bear market where fear and sensitivity to downside risk increase. Accounting uncertainties increase risk, though it is hard to quantify precisely because you are working with numbers that cannot be relied upon to assess a company's present situation and make predictions about its future prospects.

The usual resolution is a discounting in stock prices. Stocks decline to prices sufficiently low for people to consider them a good buy. How low is low enough? That depends on the collective stomach of the market. When it gets low enough that courage and eager anticipation of future profits begin to take hold.

One more thing about interest rates. To the extent that T-bills and money markets serve as a refuge from the stock market, their low yields are not necessarily an endorsement of value in stock prices. Rather they may simply be an indication of how much fear and negativity are present -- people would rather park their money rather than put it in the stock market.

As far as ELN is concerned, the values look good to the extent that the numbers used are reliable. To the extent that they aren't, a greater risk premium comes into play. My bet has been that it looks like a good long-term value, but I wouldn't bet all my marbles and I wouldn't be surprised by continuing weakness. It takes time for shattered confidence to be restored.
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