Volt, Did You Write This?>
he Skinny on the New-Era Stock Market: David Pauly (Update1)
(Changes 6th and 8th paragraphs to reflect closing
stock prices.)
(Commentary)
New York, Nov. 15 (Bloomberg) -- ''Did you see that General
Electric's P/E is 44? Must be a record. Isn't that ridiculously
high?''
''No way I even noticed. P/Es don't count anymore.''
''You mean earnings no longer have any bearing on a stock's
price?''
''How many millennia have you been asleep? Earnings don't
count either. This is a new era.''
''But you can't just buy stocks randomly. How do you pick
them if you don't use earnings?''
''Momentum's a biggie. Buy them when they're rising, sell
them when they start to fall. Qualcomm's the perfect example. It
rested today, but it's up 14 times so far this year -- and
there's no end in sight. Everyone wants Qualcomm's wireless cell
phone technology. And for the fastidious, the company actually
reports earnings. You get in a stock like this early and ride it
up -- buying more as you go.''
''Your momentum plays are perfectly timed, every time, no
doubt. But you must be on the lookout for something that lets you
buy before the run-up starts.''
''Absolutely. Any company involved with the Internet. Didn't
Jack Welch tell everybody at GE to use the Internet or else? That
has more impact on the stock than profits. More to the point, how
about a company like Juniper Networks? It makes routers for the
Internet. It just went public last summer and it flew over the
$300 mark today before dropping back.''
''I'm sure Cisco Systems will stand by and let Juniper have
as much of the market as it wants. Don't you ever look for
anything more down to earth?''
Everyone's a Target
''Takeovers are as nitty-gritty as you get. Almost
everybody's a target, so it's easy to find stocks that will get
bought at a premium to the market. Look at Monsanto. For a time,
people were excited about the life-sciences stuff they were
talking about -- pesticide-resistant seeds, whatever. That hasn't
developed as quickly as they thought, but Monsanto still commands
a good price. Why? Because now it will get taken over by a
company that thinks it can do better.''
''Still, I keep reading that most, or at least many, mergers
don't really work in the long run.''
''So what? In the short run, the stocks involved go up.
People believe what the investment bankers tell them. Despite the
billions spent on research, drug companies don't have enough new
products coming on; they have to merge to survive. AT&T and MCI
WorldCom will wither if they don't get into absolutely every
corner of the telephone business. Poor reported earnings should
be ignored.''
''And companies that never stop making acquisitions
continually fudge the question of whether their deals work, don't
they? They're always adjusting their books for the latest
takeover, so you never really know how they're doing.''
Market Power
''How about a monopoly? Does that impress you as a reason to
buy a company? Microsoft owns the PC software market. It can
raise its profits at will.''
''But Judge Jackson in Washington just ruled Microsoft
abused its power. It might get broken up. The stock is going
nowhere.''
''That's just temporary. The end of this case is years away.
Meantime, Microsoft has a lock on its market -- and in the end,
it won't have to give its profits back.''
''So, its P/E of 58 is justified?''
''Can't you get off that stuff? I tell you earnings no
longer matter. It's all impressions. That is, unless you're
talking about the new earnings -- where you exclude all those
silly write-offs for acquisition costs. I'm beginning to see the
sense of that.''
''Anything that justifies unjustifiable stock prices, you
mean?''
''You do have to keep the game going.''
''Ah.''
<gg> Ruff |
