Undervalued Stocks = Low P/E to Growth Ratios Message Board

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Strategies & Market Trends : Undervalued Stocks = Low P/E to Growth Ratios

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To: Mason Barge who wrote (129)	9/9/1997 9:21:00 PM
From: Doug Rife	of 297

I have a theory which explains at least some cases of why PEG works. Against my full-service (ex)broker's advice I bought AMAT at 27 when it had a PE of around 10 and more at 48 and the stock is now at around 95. If you recall AMAT got hit hard because of the memory chip price crash. The analysis went like this: semiconductor sales are down so semiconductor equipment sales must also go down and so AMAT crashed. But this analysis had a fatal flaw. Chip makers MUST keep up with the latest FAB techniques even when their near term sales are slow. This follows from a simple law of technology businesses: keep up with the state of the art or die. So AMAT was mispercieved at the time by most and very few had the courage to jump in. It paid off for me and now I'm hooked. One rule I use, becasue I am a long term investor with an extreme distaste for paying taxes, is to only buy market leading companies like AMAT with a low PEG reading not everything that pops up on the screen. Also, I only use and carefully evaluate long term EPS growth estimates. Extrapolating short term EPS or sales gains to calculate growth rates can be dangerous. Many companies grow at 100%/year at some point but almost none can do it over the long term. Most do it once and never again. What I'm looking for is the next AMAT. Any ideas? WDC looks good. A market leader. Going into the server storage business where long term growth is a great bet. Not a merger like SEG so you don't get into culture clashes and other merger related problems. Well managed. Anybody see a problem?

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