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Technology Stocks : Intel Corporation (INTC)
INTC 48.72+3.0%Jan 14 3:59 PM EST
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To: BelowTheCrowd who wrote (171693)10/22/2002 11:20:12 AM
From: chomolungma  Read Replies (1) of 186894
 
I think we're heading back to a multiple range of 10-20, which is where most tech companies spent most of their time prior to 1996, and which still represents a fairly high premium compared to the historical levels for the S&P.

I disagree.

We can't compare historical P/E's because we are in a new environment. Interest rates, even after the economy recovers, will be low when taken in historical context. That will provide for a market P/E of at least 19, in my opinion. Intel is still growing at a rate faster than the average company and will command a higher P/E once all the fear and handwringing is over.

Just you watch what happens. After a few years of earning less than 2% on T-Bills and 4% on T-Notes and paying ordinary income taxes every year on those earnings, investors will "rediscover" the market and all the talk about discount rates above 10% (like one poster mentioned) will seem silly. Risk premiums for stocks, while certainly not zero, don't need to be that high because over a long time period the volatility of earnings is dwarfed by the growth rate of those earnings. S & P earnings will continue to grow 6%+ over the next 20 years, even after recovery to a normal level which is around of $53.

Since most investors have very limited choices on where to invest their liquid assets, low-interest rates will result in high P/E's.
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