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Politics : Formerly About Applied Materials
AMAT 226.02-1.2%1:50 PM EST
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To: Cary Salsberg who wrote (36576)8/10/2000 6:57:47 PM
From: Cary Chubin  Read Replies (1) of 70976
 
Cary,

Thanks so much for your sensible warning of "irrational exuberance." As yet I'm undecided if this cycle is over and the current stock downturn is a warning of events to come.
I do have several questions about your analysis.
On July 17, 1999, in post 7992, you prepared some numbers as a framework for a discussion of "when to sell." At that time you suggested AMAT stock had historically peaked at a multiple of 20 times peak earnings. Furthermore, you published the then estimates of 1999 and 2000 earnings. By extrapolating 20% growth from the previous peak and your estimate of how long the cycle "should" last, you were able to arrive at a (split adjusted) peak of $40.585. 30% growth leads to a $60.475 peak. AMAT closed at $39 and change that day.
Much has changed since then. Estimates of fiscal 2000 earnings have increased from $1.34 to $2.35. Fiscal 2001's earnings estimate, $3.38, is greater than what was posted as peak earnings ($2.03) back in July 1999.
My questions are these: Does the "ratcheting up" of earnings estimates for 2001 to beyond July 1999's estimate of peak earnings, reflect over exuberance, or a strengthening and extension of the cycle? Please elaborate. What factors are you watching (other than arithmetic extrapolations) that give you confidence to predict the end of the cycle is in sight?

Thanks,
Cary Chubin
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