Harry:
On the precise point of the feasibility of $27-28 this year. Some months ago, I posted my opinion that COMPAQ was a trading stock and it would move from the low $20's to $27/28 at least three times before 3Q earnings. In fact it moved from the low $20's and returned once to $28, once to $27 and once to $25 (returning to below $20).
There have been certain happenings since I formed my original opinion which could not have been anticipated from the information originally provided by Rosen and his committee. Alta Vista was sold and not floated: the new CEO was from inside rather than from outside: COMPAQ lost substantial market share in commercial PC's.
As result, I think the longer-term recovery in share price has been disrupted and it is still a trading stock.
I have made the point before that the recovery in operations needed to support an upward trend taking the share price back to its old high and beyond, will take some time. Assuming executive competence, I would expect that the evidence of such a recovery will start to become compelling in 2Q 2000. Since the market buys the future, a marked and consistent upward trend in the share price would start about then. I have already said that I think 2000 FY earning will be at least $2 (boosted by cost savings) and the forward p/e will fluctuate between 15-30. I think the share price will be over $40 by July, 2000 and $60 before the end of January 2001. But this is all based on the assumption that the recovery plan is sound and the execution good.
But if I can make the distinction, it is perfectly possible to conceive of the share price, moving between now and Christmas to $27-28 and falling back on the basis of what we all think we know about the company and even without confirmation of the kind of recovery I have mentioned above. It is in this sense I refer to it as a "trading" stock. Repetitive moves of between 10-30% are not be sneezed at while awaiting a sustained upward movement.
Furthermore, I think a spike to $35/36 before the end of January 2000 becomes possible if and when either the company or some other source confirms that YK2 has not adversely affected 4Q, that there will be no negative surprise, that the recovery plan is on track and especially that the massive cost savings already covered by the 3Q charge are already contributing to the bottom line. I think the normal seasonal forces which make 4Q strong for COMPAQ and the January effect will conspire to push the price up briefly if all the other conditions are in place.
I want to know about those conditions as soon as possible. It is not the prerogative of COMPAQ managers to decide to tell us or not what they think is happening - it is their obligation under the law - part of the rules of the game - if they want us to invest they have to divulge to us any material matter that would affect the value of the company. It is not their company - we are not surfs waiting for crumbs of information to fall from the table of our masters - we are entitled to know.
I remember about this time last year when CPQ was struggling in the $20's - rising and falling between $23-29 that I predicted a spike to $50 by the end of January. It spiked intraday to $51. We all know now that the foundations of that share price were made of sand and while I was congratulating myself for selling some at $50 and the rest at $48 and then buying back at $41, senior executives of COMPAQ, who knew material realities which they had not revealed to shareholders and the market, were divesting themselves of the stock. |
