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Strategies & Market Trends : Gorilla and King Portfolio Candidates

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To: Mike Buckley who wrote (37249)	12/31/2000 8:36:50 AM
From: 100cfm	Read Replies (1) of 54805

Anytime anyone uses the word "value," even as part of another word, my curiosity becomes piqued. I had a feeling I was gonna get myself in trouble with you.In this market environment fair value is a very fluid number. I would say that in this PE hypersensitive market that a company will be percieved as fairly valued at a PE of 1X it's growth rate. That is presumming that the current earnings forcasted has taken an accurate account of all the companies revenue and income potential. Obviously if the earnings forcast does not include some future income or loss then the company is either under or over valued. In Q's case it is trading at aprox twice it's growth rate.To me that would suggest that some upside earnings surprise is built into the price. As it is becoming clear that there may not be any pleasant surprises I am concerned that Q is overvalued in this market environment and in the current time frame. Valuation is sort of a "In the eye of the beholder" sort of thing and changes with market conditions. If the market recovers and the economy continues to grow then higher PEs will be tolerated. I think what is holding CSCO dn is it is percieved as being fully or even over valued. It's 60%+ growth rate is pretty hard to improve on and the market has given it a PE based on that and will not go higher. If the market improves or CSCO can beat it's already incredible performance, a higher PE will be allowed. Is CSCO fairly valued I don't know and I would think few people really do Know. My concern for Q's valuation is for the next year. Five years out Q is cheap now. But for those who hold Q as a high portfolio percentage the current year is and should be important. So in the current market conditions a company trading at 2x growth rate with limited or no upside possibilities is in my opinion pushing into overvalued territory. That is my opnion and I'm sure you and alot of other folks have differing opinions on valuation. Now if China starts to become more of a reality for this year then the upside potential increases and the overvaluation factor decreases. Again only my way of looking at things in our current market condition. Last march you and I had a converstion at the luncheon(pre several bottles of OPUS) and the question I raised was, are our stocks realy worth what they are or are they at this price because everybody is buying the same stocks we are. We weren't so sure but had a feeling(at least you did) that they were overvalued by the over buying. We got our proof of that shortly after. Now we can make the opposite question, are our stocks fairly valued or are they undervalued because everyone is selling the same stocks. I think value may have to be viewed in two time frames, current valuation and longterm valuation. Current being up to 1 year and longterm being 3 years or more. And each investor must evaluate the importance of his percieved value of his holdings in the time frame that is appropriate for him. For those that went into retirement your way the long view is prudent for those who went the way of Lindy, the shorter view would have been more prudent. As I've said I think the concept of valuation is a very fluid one.

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