My 2c on "good time to buy this stock?":
1. Quality--This is a quality company. Both Uniphase and JDS Fitel have long records of consistant revenue and earnings growth. Both are well-managed. Fiber optics is an economic sector that is at the cusp of a huge growth phase.
2. Value--The price earnings multiple for this company is unreasonably high. I checked a few minutes ago and at a share price of 115 the p/e for JDS was 112.94. One rule of thumb is that the p/e should equal the company's sustainable growth rate. A p/e of 112 suggests the company will grow 112% per year. Well, have JDS and UNPH grown 100% per year? The rates have been extraordinarily high, but not 100%. Another way of considering valuation is to look at the historical p/e rates. Prior to JDS taking off last fall, the market paid an average p/e of around 30. In the biological world--and we human stock purchasers are, after part of the biological world and governed by its principles--whenever values stray far from the mean, there is a propensity to return to that mean. What price would JDS trade at if, for example, it took on a more historical p/e of say, 50? 40? 30?
3. Broad market conditions--The markets are well past historical valuations. Sure earnings are at record levels and interest rates are low. However, to sustain any real upside movement, there will have to be lower interest rates. The US Fed is headed toward raising rates in a pre-emptive move. Greenspan is worried about a) the too-tight labour market in the US and b) consumer spending and confidence. This latter is generally understood to be greatly fuled by the surging stock markets. If he wants to cool the consumer, he will cool the markets. In fact, he has already been doing that by choking off the money supply--M3 which was rising hugely since last fall has been at zero increase for the last three months! Most news reports don't cover M3 but the Fed usually tightens there before it hikes rates.
In sum, my analysis says there is little upside potential in this stock price and much downside potential. If you disagree, go onto the AOL thread--great company with a great future!--and ask anyone there who purchased in January about upside potential verses downside reality! AOL is still over priced and people who bought that stock and are holding in hopes of it's recovery in the near term have seen their capital shrink by 40%! I, for one, don't want to see my money shrink like that. Do you?
If you want to own a part of JDS Uniphase, wait for it to come to you. An old wall street adage applies: don't chase a stock uphill, particularly near the top.
But, what do I know--what's my 2c worth? Look back at my earlier postings on the same topic and you'll see I was writing that the stock was over priced 50% ago. <g>
Regards,
David Todtman |
