Are we allowed to talk about stocks here?
I believe something very healthy has occurred in the market in November. It has been painful, but like medicine (or maybe the more apt analogy is surgery without anesthesia) the pain recedes and the future is better.
The summer rally was built on a relatively small group of stocks with little in the way of present earnings but strong investor perception of bright futures. The two stocks I use as a shorthand way of looking at that rally are JNPR and CIEN. Both reached extremely high valuations in September and October, and held on through most of the post-Labor Day selloff. IMO there could be no capitulation until they were hit hard with a dose of reason.
That has now occurred, particularly with JNPR. JNPR was above 240 as recently as Oct. 17. Today it has gotten as low as 105, and is not much above that as I write this. Its trailing PE is still triple digit, but the growth is phenomenal, and given its beating of earnings expectations the past few quarters it does not seem unreasonable to expect that it will at least meet the 0.75 projection for Y2001 earnings (even with the cap spending slowdown).
That would leave its forward PE at somewhere around 150. Still high, but ..... there is also a five-year projected earnings growth rate of 52 percent. The Internet infrastructure buildout may come more slowly, but there is equal reason to believe that the 52 percent figure is actually too low an estimate.
If the growth rate from next year's 75-cent projected earnings is 52 percent a year for five years, then in 2006 the earnings would be ...... $4 per share. And at 105 a share the PE would be only 26 or so. Yes, that assumes a lot of growth, and yes, historically 26 is not a low PE. But for a rapidly growing company in a sector with huge potential upside revenues, it ain't bad.
If this one falls much further, it may be time for the market to turn. |
