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Politics : Formerly About Applied Materials

AMAT 301.11

+6.9%

Jan 9 9:30 AM EST

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From: cuemaster	2/12/2001 2:17:39 PM
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one thing for sure amat is going to take it in the n--- tommorow if they miss,options are showing 35-39 by friday and their models are seldom wrong. good post below: " 27.5 is the value I come to when I predict AMAT's bottom price relative to peak earnings in this cycle versus AMAT's bottom price relative to peak earnings in 1997: 10.78/30 cents=.36 (30 cents being peak quarterly earnings with the last cycle) .36 * 77 cents=27.72 (77 cents being peak quarterly earnings with his cycle) The advantage of this technique to calculate a bottom is that it removes all of the speculation that drove AMAT to the 115 high last year. It also works out well technically, as levels in the high 20's would fall on the same line drawn back to the previous bottoms on semi-log graph. The disadvantage of this technique is the obvious question of whether the market should value AMAT during this bottom as it did at the last bottom. For example, AMAT never fell in 1998 to the level it fell in 1996 and if you waited for this price in 1998 (5.44/25 * 30=6.5) you would have missed out on the 10 fold run. Will AMAT once again outperform its historic valuation like it did in 1998--"AMAT comes out of the downturn stronger"--or will it fall all the way back to 1996 valuations, in which case we could see the teens? I favor the optimistic scenario that its valuation will continue to discount improved business outperformance. This scenario means the bottom has been achieved or we are nearly there. I am admittedly biased however. One final concern is whether it is AMAT's competitors turn to realize improved valuations. AMAT has definitely been outperformed by certain smaller rivals--NVLS, KLAC, LRCX for example--recently. Arguably this trend could continue. Interestingly, the same phenomenon has been seen in the overall market: small and midcap outperforming large cap. The fact that AMAT's valuation improved in 1998 vs. 1996 might have been less related to AMAT's business strength than to the overall outperformance of large cap U.S. stocks. Obviously, those days are over.

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