Dodger,
I understand your concerns.
Do you know the fundamentals of Intel outside of the P/E ratio? What about the P/E expansion of the aggregate stock? Intel shares cost $63 and change per share on June 30, 1995 (split adjusted - $7.89 a share). That gives us about a 692% gain to date. Compare that to things like Dell, Cisco, Microsoft, Sun, Siebel, Oracle and others.
Here are a few things you can read about my thoughts and others thoughts on the dominant large-caps, the reasons premiums are paid for them and even a post on how to decide when a dominant company should be sold.
First thing to read = the latest quarterly Intel report review (smokin'):
fool.com
Key metrics include:
•Revenue growth of 23%
•Gross Margin of 60.4% (without the $200 M motherboard charge, the gross margins were 62.9% - in both cases, these results yield improving margins)
•Net Margin of 23.1%
•Cash-to-debt ratio of 10.9x
•Foolish Flow ratio improved to .87
What about Cisco's latest quarterly report?
fool.com
• Revenue growth of 55%
• Gross margin of 64.5%
• Net margin on a pro-forma basis of 20.4%
• Cash-to-debt ratio = Cisco has no debt
• Foolish Flow ratio improved to .87
If you want to read my thoughts on premiums paid for a gorilla with those kind of metrics and my addressing the issue of P/E ratios without me having to repeat them here, then click on this:
boards.fool.com
If you want to read an excellent article about deciding when to sell a dominant large-cap, then read this:
fool.com
You'll note that neither Cisco or Intel fall into the category of large-cap dominant gorillas that one wants to pry their fingers off of at this stage in the game. If you can find a list of 50 companies that match or beat the fundamental numbers that Cisco and Intel chalk up quarter after quarter - we're all ears and eyes. Otherwise, if you feel that the premium one pays to own a company that basically puts up metrics like this is not justified - I'm afraid you will have to use a more convincing argument than P/E, market cap and Quicken.com growth projections. We are talking about two companies that, along with GE, have the potential to become the first trillion dollar companies in the history of American capitalism.
No doubt that both are not stocks that are going to go from $3 a share to $100 a share in the next year or two, but in terms of core holdings that provide a preservation of capital as well as a healthy growth rate - the CAP seems justified to me for their dominant positions as well as their fundamental numbers that have improved a great deal since 1995. That's good management. That's good business. That's good investing. The market does a pretty decent job of finding a valuation for the large-caps. If the market is way off the mark, the eventual valuation will be found. Each investor has to decide and balance the two together to make a decision as to whether or not 'value' or 'attraction' is found in both Cisco and Intel. I remain glued to my shares.
BB |
