Well argued once again, M&L.
<you hold your position in the stock because you believe that the number of smartphones, (etc.) out there is destined to increase...> I'm very convinced that will happen. But, based on past performance, I'm not convinced it will result in a higher stock price. The Faithful assume the first condition directly and inevitably causes the second, but it isn't that simple. The stock price first hit $36 (today's price) in late 1999. Lots more cellphones, smartphones, etc., being sold today than in late 1999, but it hasn't translated into a higher stock price.
<If the Dow is at 8000 next year... ...(QCOM) will be priced at $35> Dow 10100 to 8000 is a 21% decline from today's level. QCOM is much more volatile than the DOW components. In addition, QCOM's profits come from products that are in the Consumer Discretionary category (you can always keep using your old gadget a while longer; it's not a necessity like food or Viagra).
So, if we get a double-dip recession, even a recession-lite (likely cause of 8000 DOW), QCOM's profits will get hit hard. You're predicting just a 3% decline in stock price ($36 to $35) in this scenario. A 30% decline from current prices would be more realistic: QCOM at $25, taking out the 2008 low.
In 2009, QCOM's EPS was only $0.95 (GAAP, of course). In a double-dip recession in 2011, EPS could return to that level. 25/0.95 = a PE of 26. If anything, that PE would be too high for the circumstances (cyclical stock with erratic earnings, in a recession).
You probably think that's absurd. But, if anyone had warned you, back in late 1999, that the stock price would be at $36 in 2010, you would have said:
<...need to lighten up on some of your medications.> |
