Hey, Joe. I'm not averse to differing opinions. However, and most certainly with no disrespect intended, it seems like you talk in a lot of generalities and won't answer questions that pin you down to anything specific. The discussion about GLW today sounds a lot like the discussion that we had about ORCL a few weeks ago. I asked you where you thought ORCL would trade during better economic times, and I don't recall getting a straight answer. You came back with the same noncommittal reply as with GLW...basically that you would buy it on the way up. I asked how you knew that it wouldn't fake you out, and I don't recall getting a straight answer. A stock on the way up doesn't have to keep going up. I even went so far as to ask you what price you would pay for ORCL, and I don't recall getting a straight answer. Don't get me wrong. I'm not here to try to convince you to buy stocks that you don't like. However, if you want to dog those of us who are buying ORCL, GLW, and others, you should expect the types of replies that you are getting when you appear to be criticizing our trades without a willingness to be more specific.
Like ORCL, I am NOT trying to pick the bottom in GLW. In fact, I opined that nobody can pick the bottom in any stock, absent luck. I do believe that ORCL, GLW, and a host of other stocks have much more upside than downside from current valuations. It is my belief that the economy is bottoming, but I don't think that it will recover quickly. Therefore, I think that most stock prices will be range-bound for a while. My strategy in this environment is to pick a few stocks that I believe are trading at reasonable valuations and buy a little, take the profit if I get it, buy more if it drifts down, take some profit if I get it, buy more if it drifts down, etc. I would not do this with a stock that I thought was overvalued. That would just be playing a mo-mo game and that isn't my style. I don't buy stocks with the hope that I won't be the last sucker to buy. During the bull market, you'd hear so many people claiming that every stock was heading to the moon, that the economy would keep growing rapidly, that profits would go through the roof to justify the sky high stock prices. Now you hear so many people, and in some cases the same people that were bullish a year or two ago, saying that every stock is heading to 0, that the economy is heading down the toilet, that profits won't ever recover, that every business is heading for bankruptcy. It's truly amazing to watch human nature and emotions in action.
GLW has not broken down on the daily chart. The stock has basically traded sideways in a decent range for several months. The monthly chart looks like an upside down V, and the price is already below where it was in 1998 before it traded to 110. Clearly the stock wasn't worth that much. Heck, from 1998 when GLW traded in the low teens to 2000 when it hit its all time high over 110, the price to sales expanded from about 2x to 7x, and the PE expanded from 26x to 110x. This came on a 66% increase in sales; however because of the increase in shares outstanding, the sales per share increased slightly less (50%). The expansion in the multiple was not justified by the company's increase in sales and profits period. I would agree that GLW wasn't worth that much, but I surely believe that it is worth more than the current 1.2 x sales.
Corning hasn't traded at this multiple since 1990 to 1995, arguably before they were an established leader in areas that led to their rapid sales growth between 1998 and 2001. I believe that GLW is a good buy at 6 because I believe that the stock will trade at 2 to 4 times sales when their sales start growing again. Of course this is dependent on the economy turning around, and I have already stated my opinion in that regard. If (when) Corning's sales recover to about $5 billion, which is about where they were in 1999, the stock would trade at about 11 (2x sales) and 21.5 (4x sales). Let's look at a more negative scenario....if the price to sales remains at 1.2 and sales increase to $5 billion. The stock would trade at 6. How likely is it that the P/S won't expand if sales increase back to $5 billion? Look at Corning's business segments and market position. Do you honestly think that they can't get their sales back to even $5 billion in a year or two? Would Corning be a good investment at 6 if it trades to 10 - 20 in a year or two? Obviously I don't know if Corning will trade that high over that period, but if you aren't in the stock, you can't make any money if and when it makes its move. So again I ask you for a specific answer. Where do you think GLW will trade during better economic times and do you think the stock a good buy at today's price based on that answer? Forget about whether it might trade a nickle lower tomorrow or 50 cents lower next month. You can't predict that, but it is perhaps easier to predict that sometime in the future, GLW will trade at a price two to four times where it is today. Does that make it a good investment even if it goes down another 50 cents per share, or whatever? I'm not asking you to agree with me. I am simply trying to explain my logic.
Dan |
