Brunn,
I have not posted on SI in a long time. Thanks very much for the info on historical PE ratios for AMAT. Let me share some thoughts on AMAT, I apologize in advance if the message ends up being too long.
Looking back at the chart on AMAT, it is interesting to note that for previous declines going back about 10 years the stock did not go much below 1/3 of its high. We are now at that point. However, for past declines the length of the decline was sometimes about a year long, vs. just under 3/4 year at this time. The price of tech stocks got overdone early this year, however, so one should factor that in as well. I know that looking back often gives the wrong impression on stocks, but just imagine if we are in for some sort of repeat of the pattern here.
From the low in 98 to the high in 2000 AMAT went up about 10 times. I think that pretty much blows away the efficient market theory. It also speaks to the incredible amount of crowd following and emotion in the stock market. I would love to go back and read what analysts were saying about AMAT right before that run. I bet they had it all wrong.
In addition to the low PE and PEG ratio relative to most techs, AMAT has a solid management team, is positioned at the core of the tech revolution (selling equipment to who ever wins in the various semiconductor tech wars), and the company has tended to use downturns as an opportunity to make strategic investments.
However, there is much being said now about the "bubble" in technology. I for one am hoping that the bubble is mostly deflated at this point, but don't argue with the idea that mania set in earlier in this year. But there are lots of people pointing out that techs are still expensive by traditional valuation measures. The USA Today for this weekend in fact warns not to buy techs on the dip because during past downturns it took "years" for the once loved stocks to come back. They point to the Nifty Fifty back in the 70's and say that it took 13 years for these to come back. For another example, they just had Bill Fleckenstein on CNBC a few days ago arguing that techs are still overvalued. Interesting that he picked INTC as an example, and compared it to Lucent after it was first cut in half. Maybe he is a contrary indicator though, given that he has been a bear on technology for about 5 years now. I sort of see INTC as a buy here, but I agree that the PC area is no longer the great growth area that it was.
I am trying to sort this all out right now. I just went through my portfolio and made a list of the stocks that have an adjusted PEG of more than about 2.5. By adjusted, I mean I use the 5 year earnings growth estimate for the calculation rather than than next years earnings growth rate. I am thinking of maybe unloading some of my still high priced tech stocks and just loading up on AMAT, hopefully around a price of 41 or so, if it goes back there. In fact, I almost feel like just selling everything in my retirement account and just buying AMAT at that price. I know it is generally not good advice to have too much in one company, but on the other hand, the people who tend to make big gains tend to be the people who have money to spend when times are bad. Assuming of course one chooses well.
Thanks again for the info. If you or anyone else on the tread has any comments on the above thoughts, then please get back to me. I especially want to understand any risks to buying AMAT here that I might not see at this time. My overall gut feeling is that AMAT will likely take out a new high within the next 18 months or so, even though it is perhaps likely to go lower from here by some amount before bottoming. If this turns out to be true, then I think AMAT would be a fantastic investment at this time. Also, if anyone has thoughts on other semiconductor stocks that are a good buy now I would like to hear that as well. I just added to TXN here. A recent Barrons article argued that TXN is cheap now.
One last comment. I have been hammered this year so far. I guess I am sort of trying to see if I can't use some good logic to make up for some of those bad decisions earlier in the year. These tech crashes have historically been great buying opportunities. I think this one should be as well, but I am thinking it would be best not to buy too much of the high fliers here, just incase that "13 year" argument is valid in some respects.
Regards,
John |
