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Technology Stocks : Compaq
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To: Thomas Dremel who wrote (3906)7/9/1997 6:30:00 PM
From: Harry Landsiedel   of 97611
 
Re: <<I believe the PE will expand to near 20 as market rewards CPQ's long term growth potential of 20%.>> You may be right, but it is not something we can count on.

My experience with hi-tech is that PE's are lower than the growth rate because they still have cyclical/seasonal swings and do not have the earnings predictability that companies like KO, GE, PEP etc. have.

Also, I don't use the higher PE's in the 20's in analysis 'cause it hypes the year 5 price, risk reward ratio and total return too much.

At the same time I agree that my PE of 16 is high in historical terms, but with CPQ I don't think it is outlandish, 'cause I think there is a realistic chance of long-term PE expansion, as you do.

These fundamentals make CPQ a core holding for me. What other companies do you like?

HL
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