Mindmeld, I'm not sure we agree. Yes, if there's growth in the economy there will be growth in the value underlying stocks. But value and price are not the same.
In other words, yes, I think that with the weak growth in the economy, Cisco's stock price should move up weakly. From it's current economic value.
To be specific, as I type, the price is $13.25. But back in the spring time we estimated the economic value to be around $8.00 (and that included some reasonably generous assumptions about growth, and a second half recovery and whatnot...).
Let's assume Cisco is representative of the market. If we allow the definition of weak growth to be 10%, then the market, converging on economic value, will gradually "lift" from its current price well above fair value to meet with the more rapidly lifting fair value, and arrive roughly where we are today by about January 2007.* If weak is weaker than this... then it could be longer. If economic value is lower than estimated (e.g. because estimated rates of growth are lower, for example), then it could also take longer too!
If Cisco is more fairly priced relative to the market (it's one of the best position companies out there), then the market will "improve" more slowly. If Cisco is more overpriced [than the market], then the market will "improve" more quickly. Which do you think is more likely?
I find the extrapolations from this base difficult to correlate with your description of "growth moving the market upwards" or good news for Cisco.
John
* For those who like to follow the math, current price $13.25 is about 1.66x the estimated economic value of $8 for Cisco's stock price, and 10% p/a growth will result in 1.66x in about 5.3 years. |
