True, and you can find many more items that don't make any sense, but nobody cares at this point about valuations. It's all about momentum. Keep in mind, the history of this sector, and the "bubble" mentality that goes on. When stocks go up 500, 1000, 2000, and 3000 percent in a year, year and a half, and it has happened several times in the past, nobody wants to be left behind anymore.
And valuations do not matter. I have kept these weekly records long enough to know, valuations do not matter when this sector starts on the upside of the bubble. It's "Katy bar the door" - all 25 stocks in the Group will go up very nicely, obviously some more than others, but you can put those 25 stocks up on the wall, throw about 4 or 5 darts at the wall, take those stocks and put your money down and 1 to 2 years later sell for a nice, average gain of 300 to 500 percent, maybe more. People remember how easy it was to get rich, and they don't want to miss out this time.
The scenario is all set up - lots of liquidity, tax cut pumping money into the economy, the mutual funds and brokerages want to get their hands on that 2 to 3 Trillion dollars setting in those Money Market accounts, etc, you have heard it all before. Even the shorts are helping out now. They think stocks are over valued and what can be making them go up. Then they look the next day and they find out the stocks are up again - pretty soon they have to start to cover - now the stocks go up again. Like Sarmad said, "there is plenty of fuel for the fire".
If you read the SOX table I posted tonight, you know that it was NSM and TER that led the SOX this week due to "good news" posted this week. Next week, 2 or 3 more stocks in the SOX will have "good news" posted by the press(brokerages} I have no doubt, to make sure this process continues.
To show you how bad it really is, let me post this very small table below. It shows the date, "this years estimate", "next years estimate" and the sum of the 2 years earnings estimate for the Group.
- FIRST CALL SUM
- EARNINGS EST TWO
DATE CURR YR NEXT YR YEARS
2/14/03 -11.86 9.47 -2.39
6/7/03 -13.80 8.19 -5.61
6/12/03 -13.87 7.68 -6.19
6/19/03 -13.92 8.07 -5.85
6/26/03 -14.07 7.53 -6.54
7/3/03 -14.12 7.32 -6.80
7/10/03 -14.17 7.27 -6.90
7/17/03 -14.29 7.27 -7.02
7/24/03 -14.08 7.77 -6.31
7/31/03 -12.27 9.78 -2.49
8/7/03 -12.20 10.42 -1.78
8/14/03 -12.21 10.37 -1.84
8/21/03 -12.21 10.72 -1.49
9/4/03 -11.78 11.04 -0.74
Note that the dates are not exact intervals. In February, the sum of 2 year earnings for the Group were -2.49. As of today, 9/5/03, earnings for the 2 years is estimated at -0.74. In other words, for this year and next year, the net earnings of the 25 stocks in the Group are estimated at less than break even - no profit - just a loss. Keep in mind also, that we are now over 6 months later in time than when the February estimates were made. The estimate for the entire 25 stocks in the Group has grown by 1.75 in the last 6 months - we are really "rocking along" here at a tremendous rate!:)
Now what has happened to the prices for the Group during that same period. On 2/14/03 the Group was at 304.39, the SOX at 280.16, and the NASDAQ at 1310.17. Today we closed the Group at 553.27, the SOX at 459.82, and the NASDAQ at 1858.12. Those are gains of 82, 64 and 42 percent respectively - at the same time the earnings estimates for the Group has gone up by 1.75, but still negative for the sum of this year and next year. There are a lot of ways to prove that valuations do not matter, but this was one of them.
Don |
