Hi Jules:
Just thought to make a couple of comments to the following vaild point you pointed out in your post:
You state:
> If a company is a long term gorilla, I still think too high a stock price could limit future appreciation. Eg. CSCO at $600B. OK it doubles to $1.2T. Is that possible?
Why not? remember eveyrthing is relative. As economy grows (as anticipated) a Company can very well have a market cap of $1.2T! Valuations grow relative to how big the economy is and how they are contributing to that growth. 50 years ago Companies with market cap of over $1 Billion were as strange as accepting the fact that someday a cup of cofee would cost $0.75! So it is a metter of how numbers are accepted.
What matters though are the 3 factors: Unemployment rate, Inflation, and Productivity. All 3 are defined how well and efficient the economy is running. Companies such as Cisco, Intel and LSI have come to define the framework within which the economy is supposed to operate and run. Therefore they do deserve to have the valuations they have because of their role in defining this framework. As they help the economy grow their valuations become bigger and bigger as they deserve it. In a way you can think of it this way as a valued employee who starts with a Company at $20,000/yr but as years go by and his contributions to the growth of the Company are recognized his salary increases dramatically along with promotions, bonuses, stock options, and other perks to reward him!
Also Companies such as LSI and Cisco evolve in a blink of an eye as they re-define themselves. Contrary to companies such as Gillete Coke, pepsi, MO, PG, etc. which have a well defined fixed product and can not re-define it so dramatically, Ciscos and Microsofts of the world keep on re-defining and re-introducing new products and services that continue to have dramatic positive impacts on the economy and how we live our lives. Gillets, and Phillip Morris of the world continue to grow, however their growth rate will be much less than that of Ciscos, LSIs and Microsofts of the world. In other words the contributions made by Gillets of the world to the economy will be far less than those made by Ciscos of the world.
As for LSI, I am a long term investor, but when it comes to technology you can not for sure say I am going to hold on to the stock for 10-20 years. With stocks such as Gillete you can always be a 10-20 year long term investor since they have a well defined fixed product with certain monopoly over the market that assures their continued growth. With technology Companies you have to always keep your eyes open making sure they continue to re-define their role in contributing to the economy. If they fall into stagnation then you better sell and shift to Companies that meant to be like giant gorillas that do not move fast but at least they grow due to their dominance and monopoly of the market.
At this time in my view LSI is on the right track to re-define itself for at least the next 2 years thus having far far better contribution to the economy than companies such as Gillete or Coke, or MO, or PG, etc.
Regards, |
