re AMAT and "...current industry conditions...a rich valuation..."
No, I'm not looking to trade volatility during a bottoming formation. If I was doing that, I'd buy AMAT at 10-14, and sell it at 15-20. Rather, I'm looking for another major leg down, and I will start going long AMAT at 10, not being fully invested until 5.
What you're saying is that AMAT deserves to keep a rich valuation all the way through this recession (again, based on the P/S range it fluctuates within over many cycles), because it is "immune". You're thinking AMAT's customers will keep buying (relatively speaking), no matter that macro conditions are. My response to that is, "We've heard that about many, many stocks during this Bear Market (CSCO, EMC, etc., etc.), and it's always turned out to be false hope, eventually".
My basic reasoning is that, at some point:
1. interest rates stop going down
2. housing prices stop going up
3. consumers get scared enough to start saving, lenders get scared enough to stop all sub-prime lending (to consumers, businesses, and governments)
4. consumption finally cracks (with incomes flat, consumption contracts enough for significant deleveraging to happen), and
5. capital investment/business spending, especially semi-equip capex budgets at semis, gets cut again. This will be driven by CEOs recognizing the need to "right-size" their businesses, once again. Technology upgrades don't happen in such a macro environment. They get put on hold for the duration.
I don't see any way to avoid this scenario. The government has already swung from large surpluses to large deficits, and the Fed has already driven interest rates to 50-year lows, and all that has done is flatten the slope of the downturn.
My mistake was buying AMAT at 20 earlier this year, and I am correcting that error now. |
