Someone thinks the post I did has a serious flaw.
My response is below.
Comments Mike?
BTW Merry Christmas to all on this thread.
Happy Boxer Day as well.
<<The flaw in your thinking is the market is forward looking. Tell me what you see 12 months from now. We will be well along in the recovery process and stocks should begin to reflect that in 5 to 4 months from now.>>
The market is indeed looking forward. That is why stocks keep dropping. In 6 months I see a severe recession. That is what the market sees as well.
9-12 months down the road I see recovery. But only after the final washout. I want to see stocks trading at PEs in line with their growth. Take a look at JNPR. My favorite example. A market cap of 40B with a PE of 320. Let's see. 320 years for $1 of investment to return $1 in earnings. What bank would loan you $100 and let you pay back $200, 320 years later. OK lets say JNPRs growth is 100% next year, that makes the forward PE a mere 160. 160 years on that payback. Not very good is it. Ok lets say growth 100% the following year as well. 80 years to return that investment. I think you get the idea. How long can JNPR keep growing at 100%?
So, now lets look at what the growth really is. 70% estimated next year and 50% over the next 5. Is JNPR a good investment? Can they even maintain that growth? Will CSCO come out with a better or cheaper product? Will prices come down because of other competition?
Let's look at this one more way, JNPR has revenues of 86 Million and a market cap of $40 Billion. Does this seem rational?
Please try the above on HGSI, RIMM, and any think else you think is a "bargain". Here is a clip about RIMM.
Research In Motion is a designer, manufacturer and marketer of innovative wireless solutions for the mobile communications market. For the six months ended 8/31/00, revenues increased 96% to $69.6 million. Net loss totaled $1.2 million vs. an income of $4.1 million. Revenues benefitted from continued subscriber growth. Net loss reflects increased marketing campaigns to increase brand awareness, staffing increases and higher research and development expenses.
Is RIMM a buy?
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In a nutshell here is the entire problem.
People keep looking at how far stocks have fallen and thinking "wow I can get JNPR 30% cheaper than it was a week ago". They really need to be thinking how far can it drop further.
This bear market will not end until nearly every excess like this is eliminated. Some traders realize they are buying junk but do not care, as long as they think there is another sucker to sell it higher to.
The "greater fool" theory is still working as I type.
Today was a classic example.
JNPR will hit $40 before this is all over.
AMZN will hit ZERO (or close to it).
RIMM is a $10 stock, if that.
Why should I worry about this market getting away from me.
No one has answered my question of "Can financials keep going up forever". The DOW will participate as well.
That will be the final leg down in this bear market.
M |
