To Scott and others:
I don't think problems with KLIC are company specific - the whole semiconductor industry seems to be much weaker than the rest of the general market. Another pure play, KLA Tencor, has dropped even farther from its high than KLIC. I think the whole semiconductor industry is bracing for the fact that the top may be near. Scott himself admits, "The insider sales (for KLIC)are impressive...as they are for many other equipment companies."
I don't think you can get a clearer declaration than that!
At the risk of sounding patronizing, I believe you might be making several errors:
1) Placing way too much faith in analyst estimates. They are pretty good for one quarter ahead, largely because companies often give precise guidance. After that, they tend to be a shot in the dark, and are constantly revised up and down.
2) Dismissing the insider data. Again, most of the time, insider selling is not prognostic. But when the Chairman, CEO, CFO, Senior VPs, Executive VPs, Directors, and Insider Shareholders dump 50-95% of their holdings, it's time to take notice. I can't recall any time in my 15 year investing history when multiple insiders sold over half their holdings and it wasn't bad news for the stock.
3) Getting emotionally attached to your stock. Your rationalization for all the insider selling seems a bit...strained. Are you being truly objective?
4) Most Critical Flaw: The P/E and P/E to Growth Ratio are wonderful valuation models for growth and value investors. I use them all the time. But you cannot use them for cyclical stocks!
For years, the auto makers like GM, Ford would go through regular boom and bust cycles. The Smart Money knew to SELL when the P/E was very low and BUY when the P/E was extremely high. Exactly the opposite of what you would expect!!!
Why? A low P/E implies booming earnings - the Top of the Cycle! SELL!!!
A high P/E implies paltry earnings, or even negative earnings. Bottom of the cycle. BUY!!
I remember a broker recommending to me many years ago to buy Ford, and the P/E was about 2000, and I said, "Are you crazy??" I missed out on getting it at the very bottom.
By the way, the P/E for GM is now 10, and the P/E for Ford is now 9.
In summary, one can make a lot of money on cyclical stocks. I sure have. But you HAVE to know the rules of the game.
1) Don't stick around too long.
2) Watch the insiders for clues when the cycle is nearing its peak
3) Buy at high P/E, Sell at low P/E
Obviously, the rules for growth or value investors are completely different... |
