Jacob:
First, sorry about the thing with the firewood. I was just joking around.
Second, you ask a good question and your position is not ridiculous. You are only asking the same question that we all have, namely what is the "value" of this stock, and your position is that the market might set the price lower than it is today.
I think we all get that. Stock price and stock value are different ideas. Your suggestion that QCOM might sometime in the future be priced below $30/share is far from impossible. Indeed, during the Great Depression, the legendary Benjamin Graham made a fortune buying stocks for what he termed "net-net;" he bought shares in the company for less than or equal to the cash value of the stock-- in other words, he got all the hard assets of the company for free. So the thought that QCOM might sell for its cash value is not absurd. In fact, such things have happened before.
Most of us know the metrics on this stock well. My earlier posts (in which I argued that those who believe the stock will decline in value would be smart to short the stock)have argued that the stock has a high value at a low price compared to historical norms for this stock. In fact, if you look at the prediction of the stock professionals who do make a living writing about valuations of stocks, they concur that this stock is selling at a high value (but a low price for so much value).
That's where perspective of the overall global market enters the analysis. When Ben Graham was buying stocks for net-net, the United States was in a miserable economic downturn and the Nazis were marching around Germany. Because of the global economy, stocks were valued very cheaply in comparison to historical norms.
As you might know, QCOM was once one of the most aggressive growth stocks ever to hit the board. People, many people on this board, made money buying the stock at high multiples of earnings and sales. Then the tech blow off happened and prices of tech stocks returned to more historical valuations. Things built up slowly during the 2000's so that before the meltdown of 2008, QCOM was beginning to be valued at high but not ridiculously high numbers. Then the blow off happened and we are faced with a market that no one can fully predict. That's the whole deal here. If we knew how the global market was going to perform for the next 5 years, we would know better how to value this stock. If the global market crumbles, if there is a debt crisis that brings down the EU, stocks like QCOM might be valued even more cheaply than they are today. If all hell breaks loose, the stock might be valued for less than the cash on its books.
Assuming that the world economy slowly grows and that we don't have an international collapse of the financial system, then how should we value the stock? My earlier arguments have centered on the facts (well accepted by the financial community) that by historical norms, by valuations, this stock is cheap. If we have a reasonable recovery (and some say better than normal, most say it will be worse), it seems to me that the odds favor a rise in the price of QCOM. As the earnings numbers grow, we will have a stock selling for a PE normally associated with "value" stocks. Could the price fall? Of course it could. Does anyone know for sure what will happen? No. It is impossible.
So it isn't a question of whether the stock will go up and down. We know it will fluctuate. The question is how the stock compares to historical norms. I think it is clear that it compares quite favorably. But what if something changes? What if some competitor comes up with something that blows away QCOM technology and it will arrive in around a year and a half? Well, something like that could happen but I would put the odds on that as under 1%. Since the stock sold in the mid 30's last year during the worst economic crisis since the Depression, I think the odds that it will drop down to cash value are also under 1%.
I think this is in the spirit of the thread. We are trying (in good faith) to help each other understand this sometimes complex interaction of valuations, expectations, and technological shifts, in the context of a shifting global economy. It is little wonder that opinions might differ.
Incidentally, you might want to see the Financial Times from yesterday morning. It shows the cash build up in the largest tech firms. Apple had the most, followed by Microsoft, Cisco, and then I think Qualcomm. All of these stocks are valued at numbers far lower than in the late 90's. It isn't Steve Ballmer's fault that MSFT is valued at lower numbers than when Bill Gates ran the show. That is simply a market reality. This market is valuing everything much more cheaply. And that's the reason, of course, why some of us are looking for things to buy.
I don't think anyone has been burned at the stake in the several years I have intermittently followed this board. But if I go on much longer, I'm afraid I might be tempting the fates.
Best wishes and keep a fire extinguisher handy.
j. |
