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Strategies & Market Trends : Gorilla and King Portfolio Candidates
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To: Eric L who wrote (23644)4/26/2000 7:20:00 PM
From: Pirah Naman  Read Replies (2) of 54805
 
RE: Jubak

I admit to not being a fan of Mr. Jubak's writing, so I had not read that article. But I set my prejudices aside (or tried to) and read it. I agree with the premise of looking for stocks, not sectors.

MO is that free cash flow should be used instead of earnings, so I am not a fan of PEG and YPEG in the first place. They are too great of a simplification, e.g., as true growth rates increase, a higher ratio is appropriate; with greater certainty of results, a higher ratio is appropriate. Also, probably because they are so quick and easy, they cause people to overlook whether a company is truly making money (free cash flow). But even accepting them as tools, the use of PEG and YPEG by Mr. Jubak was IMO inappropriate. These are all too often used incorrectly; they should really only be applied to companies that have a proven and consistent record. They should not be applied to cyclicals or to relatively new companies. Mr. Jubak violated very basic principles here. (I also disagreed with his rational for relative certainties, but that isn't relevant to a discussion of valuation.)

It's tough to compare the valuation of stocks with very different growth rates and future prospects

It isn't at all tough, but it also isn't as quick and easy as most readers want. Hey, most don't want to do any DD on their own. :-)

- Pirah
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