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Technology Stocks : Lucent Technologies (LU)

LU 2.415

+1.9%

3:59 PM EST

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To: GVTucker who wrote (12055)	1/5/2000 4:57:00 PM
From: John Malloy	Read Replies (1) of 21876

<Chuzzlewit, it is practically impossible to justify buying CSCO based upon any rational discounted cash flow model.> Not so! In Post #30772 I reported a discounted cash flow analysis that showed an investor who insisted on a 12% after-tax return and who planned to hold Cisco for two years could afford to pay $138 for it. The analysis was based on the growth of equity/share gradually slowing from today's 53 %/yr. to 50 %/yr. in two years. That growth pattern brings equity/share to $13.81 in two years. I also allowed for the price/book ratio to slide to 13.8 by that time. That combination of equity/share and price/book ratio brings Cisco's price to $191 in two years. Allow for a 20% capital gains tax and 1% broker's commissions when buying and selling, discount at this investor's 12% minimum acceptable return, and you find he can afford to pay $138 for Cisco. John Malloy

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