<<CSCO (the stock) a strong and compelling candidate for investment>>
Did John Shannon post that, or was it someone else with the same name?
I think you've taken a walk on the road to Damascus, and got struck by lightning. Talked to an angel. Your post is almost Exuberant.
Although I sold some CSCO today and yesterday, I think the "window of opportunity" for buying CSCO, is closing. In the 9-10/01 dip, I could only see the abyss; couldn't see the other side. Now, I can. So, I think, we're talking months, not years, to get a LT position at "good" prices. And "good" is whatever the market will give me. I can come up with a lot of reasonable-looking yardsticks to measure "good price", but, if the market doesn't agree with me, then I'm wrong (no matter how clever or historically accurate I am).
But, I'll try anyway to come up with a reasonable yardstick, this way:
1. valuing the company now, based on CY 2003 GAAP EPS
2. which will be $0.58. They made $0.10 this quarter, and I'm assuming an increase in the EPS, of 0.01/quarter, each quarter, from now on. These current guesses are higher than my previous guesses (made before the last earnings report).
3. CSCO PE should be in the general range it was before the Bubble, before 1998. Yes, it's a bigger company, and bigger companies inherently grow slower. But it is (I think, and you seem to, now, also) on the cusp of doing in telecom-equip, what it did in the mid-late 1990s, in networking for enterprises. And it has a longer track record, and a bit more cash, than it had in 1995. And inflation is lower, so higher PEs for everything are justified. So, very roughly, it balances out, and the PE range we saw in the mid-1990s is not unreasonable to expect, going forward. That's 25-50. This expectation doesn't require any Exuberance, does it?
So, a PE of 25 times EPS of $0.58 equals a stock price of $14.50, which is a reasonable price to pay for CSCO.
And, there is the fact that, in the frightful days of late September 2001, the stock only got as low as $11. And I don't think the market gets a reason to be that frightened again, not anytime soon.
So, I'm a buyer, from $14.50 on down. |
