>> Ciena just beat street estimates by a wide margin during this bust in the markets for communications equipment. Ciena is small and it's taking share. <<
But you notice their stock price didn't respond. Highly valued stocks like CIEN don't have to plummet from these levels, but they could trade in an excruciating range that frustrates the hell out of everyone for years.
--- 52% of CIEN's revenues came from two customers
--- "At least one competitor is going to desperate pricing measures," said new CEO Gary Smith
--- Officials acknowledged that gross margins could take a hit
--- CIEN is trading at 80 times this years earnings
--- CIEN is trading at about 10 times it's revenue run rate (and it's getting a large enough base where hi-growth rates will be difficult to sustain)
Now Bill, a lot of things have to go right for CIEN to justify the current valuation, let alone a nice investment return going forward. ( I assume you're not looking for 10-12% returns, but more like 100-120%) Most importantly, I think it will need a return to the kind of runaway investment and multiples seen at the end of a bubble. I just don't see how that can happen. When you have over-investment for such an extended period of time, and people get burned, they just never go back to spending the way they used to. For one thing, many go bust and have nothing to spend. The rest who survive the carnage are much more careful going forward. That is something that just can't be helped, and it translates into new (lower) valuation parameters.
The main point I'm trying to convey is this. Sure there will be some sectors and some companies that find a way to succeed in this new set of economic conditions and valuation parameters we have to deal with. But I believe they will be the exception, not the rule. Tech stocks these days are like salmon who are climbing the ladder to spawn. It's a difficult uphill swim, if they can even find the ladder they need to climb. Most won't make it.
A couple of years ago you could have bought just about any tech stock and generated unprecedented returns. The odds strongly favor that not returning anytime soon. History supports that view. Rather than the frustration of trying to get the mo to return to these 4 letter stocks, why not take an easier route? Instead of hoping we can re-inflate a bubble which has already burst, why don't we look for a totally new and different bubble which is just starting to inflate?
When you find a new bubble forming you don't have to be very discriminating. Everything runs and runs hard. That's not happening with tech stocks. Sure they run hard when they get oversold, but the running stops as soon as they approach a major downtrend line, resistance, or some overhead supply.
Why restrict yourself to only tech stocks? There are whole sectors that have suffered several year bear markets and are just starting to emerge.
Perhaps these are the "New Economy Winners"
quote.yahoo.com |
