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Politics : Formerly About Applied Materials
AMAT 301.88-1.0%3:59 PM EST
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To: Alastair McIntosh who wrote (42717)2/26/2001 4:05:05 PM
From: Jacob Snyder  Read Replies (1) of 70976
 
re: "Why can't we expect a share price that will give a PSR of 1 at the bottom of the cycle?"

Because:
1. AMAT is a bigger company
2. with larger market share, and
3. higher margins (comparing trough to trough, and peak to peak, which is the correct way to do it for cyclicals)
4. this downturn may (emphasize that word: may) be only half-a-downturn, if tech purchases continue through the downturn, while only capacity purchases stop. The jury is out on this, IMO.

Conclusion:
1. No one really knows what the trough valuation will be, so dollar-cost averaging in is a better strategy than trying to guess the bottom and loading up there.
2. My guess is AMAT will hit 1998-trough valuations, at about a P/S of 3. This is a general target.
3. The only way we'll see 1996 trough valuations (P/S of 1) is if the economy has a 1974-type recession. Since I don't see that happening, I don't see us reaching a P/S of 1. But, if we do, I'll be buying LEAPs with my kid's allowance money.

JS@longtermbull.edu
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