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Technology Stocks : Lam Research (LRCX, NASDAQ): To the Insiders
LRCX 248.23+3.5%Jan 29 3:59 PM EST
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To: Ed Beers who wrote (3638)11/16/1999 6:24:00 AM
From: Duker  Read Replies (1) of 5867
 
Ed et JHY,

That's the rub, isn't it? How much are you willing to pay for $5.00 in 'peak' earnings? Once the cycle is underway (and it clearly is for the larger companies in the front-end), you really begin to start 'playing stockmarket.'

Given the unpredictability of the SemiCap cycle, I would argue that a 5% cap rate (20x's EPS) would be pretty generous. That does not mean that The Market would not/has not assign(ed) higher multiples; it just means that you start to play 'Cyclical Chicken' with the rest of the participants. The temptation to do this is really quite strong, but it is a very difficult game and the odds are with the house as they are with most games of chance.

Perhaps we are not there yet. It could be that the game of Cyclical Chicken will not commence for another year or two -- no one knows how long and how strong the cycle is until it is over.

I feel much more comfortable buying companies at ridiculously low valuations than holding them hoping for someone to do the same on the other end of the spectrum. As we enter this more mature phase of the recovery for the bigger front-end players, I have done very well and hold a much more modest position than I did a year ago. That said, LRCX is still a very big position by all metrics (still two digits to the left of the decimal).

--Duker
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