Gus and Stitch,
Gus, I stand properly chastised (albeit very nicely;) I will try to control my vitriolic feelings about this deal (but make no promises!) <vbg>
Stitch, I could not agree more that money will return to the tech sector (don't know when, of course - don't see what's on the immediate horizon to drive the stocks back up since erps is almost over and, as you mentioned, tech stocks usually languish in the summer before rebounding mid-late fall.) However, this is an election year, during which stocks have historically performed beautifully. Also, everything seems to be happening a month or so earlier this year (ie - January effect in Dec., tech wreck in April instead or May or June, etc.) FWIW (not much, believe me,) I raised cash in late March and more during the rebounds last week to hopefully take advantage of some babies who seem to be thrown out with the bathwater. For example, sold KO @52 and bought CNXT @44; CNXT made more sense to me than KO with similar PEG's (1.5 & 1.4 based on the prices bought and sold.)
Regarding the BW article, I am totally befuddled (see, Gus, I'm trying to be nice <g>!)as to how SEG can be termed a "value stock" in this environment. I have no idea how to value VRTS. I've read convincing arguments pro and con about assigning higher multiples to software companies than hardware but am sure you are far more knowledgeable than I in that arena (and just about every other one, too!) VRTS is supposed to make $.49 this year (suspect that's conservative, so let's use $.60 - even though they didn't exactly blow the #'s away last week.) They are projected to grow earnings at 37% yoy; however, Mark Leslie indicated in last week's cc that 40% may be too low - so let's use 45%. At 95, the p/e for this year would 158; the peg 3.5. I know that p/e's are not as relevant for faster-growing companies, but I really believe PEG's are. At some point (as I think we're seeing) the mantra becomes "show me the money!" (look at what's happening to EXDS today - earnings were fine but revenues were flat) I don't know of another company comparable to VRTS (which undoubtedly is part of the stock's allure.) I guess the closest may be EMC: @130, current year p/e is 89 and PEG is 2.8. I used the actual average estimates for EMC, although I suspect that if the estimates were too conservative for VRTS, they were also for EMC. I think a PEG over 2 is very rich, but that's just my conservative philosophy (although I confess to being a happy owner of EMC-but would not buy it here.) I'm probably missing something, but I can't justify the market value of VRTS, hence my comment that the BW article was a joke (must admit it was rather indelicately stated <g>, however.)
In terms of arbitrage, I suppose you mean shorting VRTS and going long SEG. What happens if the deal falls through? (Wishful thinking on my part, although the deal has to look less attractive w/VRTS having lost so much market cap, and IF I'm right about the valuation, there could be more to lose.) If the deal collapses, I would think the current management and BOD would be out on their ears, and I simply have no idea what might happen to either stock. It may be a great play, but I am a real chicken (who is also terrified of short squeezes.) I have a note posted over my desk that says: "You are the same idiot who wanted to short AOL in 1998 two weeks before it launched its journey to the moon." So, you can see how valuable my judgment is.
Thanks for posting the Journal article. I am also befuddled as to how Y2K could have had such a big effect on IBM and not on several other firms. Who knows. I'm also long IBM, HWP, DELL, CPQ, and INTC. I have a feeling there's something just a little bit lacking in IBM's execution.
I'm very, very flattered that you asked for my thoughts (bet you never thought they would be such a rambling thesis - sorry.)
trish |
