John, you said >I like to use the PEG ratio, using forward PE, and the 5 year estimated growth rate to get a feel for value in stocks.<
It can't hurt to get a feel this way, but it is not very useful for cyclical stocks - as Jacob has already commented.
Besides, 5 year earnings projections cannot be very accurate AND the market clearly does not price the stock based on them. If it did, the price would not be cyclical.
I prefer a very simple minded method where I determine what semi equipment orders [the main driver for stock price] are doing. They are declining. Price SHOULD decline with them, as in the past, but may not because of institutions jumping the gun. Then, even more simple minded, I draw a straight line on a 10 year price chart, connecting the cyclical price lows. This establishes a downside potential.
I already know that as in the past the stocks should eventually appreciate 300% or more from there, unless the cycle gets flattened this time. We've been promised this flattening before and it hasn't happened. I think it's safest to assume a V shaped cycle for orders and price, simply because we've seen it since Jan '95.
All of the above I combine with staring at the price chart, which is called voodoo by some, paying attention to volume and to daily and weekly trends when they appear.
My short answer could have been: I take Applied's ability to thrive and grow market share as orders turn for granted.
I just try to get a good entry price from the chart.
Gottfried |
