Qualcomm Incorporated (QCOM) Message Board

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Technology Stocks : Qualcomm Incorporated (QCOM)

QCOM 169.42

-2.2%

2:15 PM EST

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To: Wyätt Gwyön who wrote (118800)	5/15/2002 9:20:23 AM
From: Art Bechhoefer	Read Replies (2) of 152472

Are equities expensive today? The conclusions in the book "Irrational Exuberance" are flawed because the data do not represent a universal, or even an average population of stocks. That's the trouble with many economists: Their models are simplistic and their data sets consist of whatever is easily available. The fact that the PE on a certain group of stocks is higher now than it has been historically does not mean that the PE for certain kinds of stocks is too high. The problem, as always, is trying to use a general condition to predict a specific result for a stock. It usually doesn't work very well. A stock like QUALCOMM cannot be assumed to perform like the average company involved in wireless telecom equipment. If the PE of the S&P 500 is still too high, that doesn't mean that the PE of EVERY COMPONENT of the index is too high. There are a lot of issues not covered in Schiller's book, such as the differences in risk between companies that have substantial debt, and those with little or no debt. Risk levels affect stock prices (eventually). A stock with low risk, and particularly low downside risk would likely have much less debt than others in its group. One cannot value that stock by the same PE criteria that apply to stocks of companies with higher debt. When you look at growth stocks, it is important NOT to rely solely on PE. A company like QUALCOMM, furthermore, has patents that do not show up as a particular value on the books, so one really doesn't know what the company is worth by looking only at shareholder equity. The best measurement that I have found useful in evaluating growth stocks like QUALCOMM is net change in book value per share. This doesn't take into account the value of the patents but it relates to them because it shows the effect of the patents over time. Art Bechhoefer

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