I appreciate your views and there is a lot of truth in what you've just posted. If we focus on the fact that these are cyclical companies, it might be wise to define our expected parameters of this "cycle".
If you think that the cycle started it's upturn 14 months ago, then I can understand your reluctance to buy now. The "typical" cycle for the SCE industry has been about 3 years long. Since the stocks start to show weakness near the end of the 2nd year (or in the last quarter of this year if we think we are in the 14 month of the upturn) then I agree that buying now has plenty of risk.
I'm not sure I agree with the concept that the cycle started 14 months ago. We know that the stock prices bottomed out back then but the bottom was at the end of a huge bear market, one that reduced the valuations of most stocks - not just those in the SCE industry. I am of the belief that the stock price bottoms of 2002 were atypical - in other words - the bottom was much more severe then the industry's fundamentals justified. Because of this belief, I don't think it's right to claim that the up cycle started 14 months ago, at least not for the industry - only for the stock prices.
My view of this up cycle for the industry (not stock prices) is that it will peak in 2006 or 2007. That is, the companies in this sector will generate peak earnings in 2+ years. With this view, I think it's way too early in the cycle to think that stock prices have topped out.
Have prices come too far, too fast? That is very debatable and I echo your concerns about valuations at this stage of the cycle. If you aren't concerned about short term volatility and are looking at the overall cycle and when it might top out, then I think it's too early to say that the valuations now are excessive. If EPS estimates for the group come anywhere close to the industry growth estimates being tossed out by Gartner and SEMI, then we have a long way to go in this cycle.
The hardest part for us at this stage is to look forward - not backward. It is plainly (or painfully) obvious that buying in Oct of 2002 was a great idea. That's not a question we need concern ourselves with. The question is should we be buying in Jan of 2004, as we will look back 14 months from now, knowing the correct answer.
RtS, since you watch the short term as much as the long term, then I think it wise to be concerned about buying at this moment in time. We've come a very long way without any painful corrections.
One issue that should be noted is: waiting for a huge correction to start buying has been a losing proposition during this run! Most who have done this are still on the sidelines.
jmo
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