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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets!
LRCX 157.09-1.7%3:59 PM EST
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To: Kirk © who wrote (9760)4/20/2001 7:19:33 PM
From: John Cuthbertson  Read Replies (2) of 10921
 
Kirk,

From your number, I am guessing that what you calculated was a straightforward weighted average of each stock's individual P/E. This doesn't work well when some of the P/E ratios are negative (JDSU, VSTR), because then the effect of the companies that have negative net earnings is to bring the overall average P/E lower (highly illogical, Captain!). It's better to calculate the weighted average of E/P for each stock, and then invert it at the end. This ends up really giving you the total price you are paying for each dollar of net earnings in the portfolio, which is what the P/E ratio is for an individual stock. Using that method, the weighted average P/E for those top 11 companies is about 95 (using their weights in QQQ).

Yes, some of those big losses like in JDSU probably are write-offs and not "operating" losses. However, the problem with excluding those "non-recurring" items is that they so often tend to keep recurring! VRTS is an excellent example of this phenomenon. (The earnings numbers I used were the GAAP reported earnings excluding extraordinary items, so any one-time items that actually met the GAAP rules for reporting as extraordinary have in fact been excluded.)

==John C.
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