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Technology Stocks : Rockwell-Spins off Conexant (CNXT)
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To: MeDroogies who wrote (1777)12/4/2000 11:13:03 AM
From: David W. Taylor  Read Replies (2) of 2013
 
Of course I was closer than all those "analysts."

The difference is simple. I was actually thinking and they were all simply "wishing." It doesn't take a big brain to see that this entire Tech Sector was and still is in a huge mania. CNXT is simply my poster child stock for this time.

My original target of $20 was based on extrapolating the actual share price that would have been in force, if Conexant had a fairly typical 15 to 18 Price to Earnings ratio.

I used the word "typical" in the sense that it had before our last 2 years of blowoff mania pricing, when p/e's were mostly in that range. The entire market has had a p/e of around that number on average over the previous 100 years or so. That number arrived when investors actually calculated the yield of owning a stock versus a bond. Given stock's inherent greater risk than a bond, that number gives a fair yield.

This was possible back then when I made that calculation, since CNXT actually had earnings at that time (about 9 months ago).

The recent $16-18 figure has come about, since the board at Conexant started to do the really silly stuff and become obsessed with the stock price as it fell. The idea to spin off one whole line of business in the "SpinCo" was and still is a desperate attempt to catch the money from the unthinking public that has been following them.

The additional expenses of running two companies instead of one, make this "stock split" a crazy notion. Companies usually merge to create economies of scale. Conexant has to be "innovative" and go the other way. Strikes me that the management knows its own limitations and knows that it has not got the cranial capacity to manage the combined operations.
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