Andrew Bary wrote an extremely one-sided article. . .characteristic of Barron's. . . which is why I never read that one. . . however I do enjoy the size of the paper, which is just perfect for lining birdcages.
What made AOL worth its market cap? For too long, it was considered WAY over valued. . . then they used their stock as currency and went on a shopping spree. . . they bought Prodigy, Netscape and made scores of other equity investments. Suddenly, AOL was WORTH its market cap, and fund managers were pouring in. . . .
Yahoo went through this same criticism. How could it possibly be worth its valuation? Then they bought BCST, GCTY and others . . and made numerous other equity investments. . . and suddenly the world was beating a path to their stock.
I could go on and on with examples. . . .Now why would we investors make the same mistake over and over. . . don't you wish you had bought AOL and Yahoo back when everyone thought they were WAY OVERVALUED? Because now they are blowing away the street with earnings and nobody is comparing their valuation to GM and BA. . .since their earnings growth is far stronger than either.
So ICGE may CURRENTLY hold an extreme market cap and there is certainly a risk associated with their performance . . .but they have yet to go on THEIR shopping spree with their new stock currency. So what happens to ICGE's valuation should they buy up VerticalNet? Or if they scarf up Ariba?
Think about that one for a second.
See by SPENDING some of that valuation, it INSTANTLY increases their revenue stream and their worth as a company in the eyes of investors. The many IPOs that ICGE spins off in the coming months are just the gravy to this stock, in my opinion.
And I for one am not about to wait until they start choosing partners before buying, because their stock price will no doubt rise as they begin to show initiative. I am more concerned with getting into such companies BEFORE they execute 3 or 4 more stock splits as their price rises. . . and other smart investors are doing the same.
QCOM is another that is thought to have an extreme valuation. . .yet funds and large investors, as well as Barrons are not "picking on" them. . .because they bought the story of QCOM holding all the cards in the CDMA market. Yet IDC owns the patents on B-CDMA or Broadband CDMA, which certainly has more of a future than NON-BROADBAND CDMA. So along these same lines of using stock as currency in order to prove your valuation. . . If Qualcomm had a brain, they would buy IDC immediately.
Likewise, BRCM should buy MIPS and CNXT. . .and on and on. . . because it is these mergers that will JUSTIFY the current high valuations moving forward.
January is often a time when many companies announce such mergers and acquisitions. . . so I expect some very interesting news in the coming weeks, regarding these overvalued companies.
Now re-read that Barron's article on ICGE, and you will see how silly their "new math" looks.
Rande Is
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[Disclosure: I am long ICGE, VERT, IDC & AOL and am a private investor] |
