Thanks for that thoughtful post.
I agree, that a 2/3 decline from a mania top does not indicate a bottom.
The PE or P/S ratios are only useful after you've answered the question, "has the cycle peaked?" If the cycle has peaked, then we still have in front of us a 12-month slide in bookings, which hasn't started yet, although the stock prices are anticipating this. If this last bookings report had shown a decline (making two in a row), then I would be saying now, "OK, we've seen the top in bookings, and the long slide isn't going to end till AMAT is at a P/S of 1-3, sometime in mid-late 2001." But bookings went up.
It's hard for me to believe that the stock went from 115 to 38 based on the Street misunderstanding what's happening in the industry. It's easier for me to believe that the Street knows what it's doing, and knows things I don't. A 30% decline can be just a head-fake, but we're way beyond that.
You said, "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." True. But many investors, over the last year, have used that as a rationale to buy stocks that then got chopped in half, or worse. I know this from personal experience, and I suspect you do to.
And I must disagree that AMAT is undervalued. It is reasonably valued now (= in the middle of it's historical P/S range) if, and only if, bookings are going to stay at today's high levels through 2002. Are they?
I've discussed ad nauseum why I use P/S, not PEs. Briefly:
1. creative accounting is rampant in the E part of the PE. Harder to fake sales numbers.
2. cyclicals are better valued with P/S.
3. forward earnings guesses are totally unreliable.
re: Fleckenstein: he tends to get the most news coverage for his continual "sell everything now" opinions, just as stocks are bottoming. When you see his face on the cover of Business Week, you'll know it's time to buy out-of-the-money LEAPs in techs.
I agree, that TXN has better prospects than INTC. But the Street agrees also, and it's in the stocks. I also like MSFT (bought at 62 earlier this year) and QCOM (bought at 68).
One last comment: we are all great stock pickers in a bull market. And our self-confidence gets hammered in a bear market, even when our stock-picking abilities haven't changed at all. Stock valuations got hammered in the 1970s because interest rates soared. Unless you think we're heading toward stagflation and 18% 30Y-fixed mortgages, there is no need to worry about a decade of flat stock prices. |
