re: valuations on techs:
1. First, don't use PE to value AMAT. It is a deep cyclical, their earnings often peak at around the time the stocks are troughing, and vice versa, and this distorts PE ratios. If you want to use PEs, you must use multi-year smoothed averages, which correct for the wild swings in earnings caused by the cycles. P/S is my preferred metric for AMAT. At a P/S currently of about 4.5, they are not anywhere near where any previous cycle has troughed (at 0.9-2.2). In fact, up until the last cycle peak in 2000, a P/S of 4.5 is higher than any previous peak cycle valuation.
2. You have to be very careful, trying to calculate PEGs today. There is an immense amount of debt, especially to dotcoms and telcos, which is going to have to be written off, and we are just begiining to see the accounting for this. Just beginning. It won't take us as long as the Japanese are taking (they still have a mountain of debt on corporate books, that has been uncollectable for a decade). But we are going to see a wave of "special charges" for uncollectible debts, and it is going to have a significant effect on balance sheets and income statements. In addition, there has been an immense amount of Creative Accounting going on. It defies reason, that companies like GE and CSCO were able to beat earnings expectations, by exacly one penny, every quarter for years and years. To put it bluntly, they made the numbers fit the expectations, and deferred a huge amount of expenses into the future. AMAT, I think, has done a lot less of this than the telco-equips. I expect to see a lot of restated earnings from past years.
3. Lastly, forward EPS estimates have been plunging lately. And, unless we get that sharp V-downturn, those EPS expectations are going to continue to come down. |
