Don, got your message and here is a first suggestion on hitting it big over the long run. First thing hitch your wagon to a company active in a growing market, you will not make it particularly big in industries that grow at the national average GDP.
Second find them when they are out in favor.
3. Try and model a scenario that will give you a five bagger in three to five years. As an example I'll give one of my current favorite (and I am not in it right now, but we will get to the timing as well).
Semiconductors are still destined to grow at least at 5 times the average GDP of the US (I am generous and use 3% for US GDP growth and only 15% for semi). So look at this sector and try and identify future winners. My long term winner is a very stodgy company WFR which controls 30% or more of the wafers production. Whatever happen downstream does not matter, the chip makers will always be hungry for more of these shyny black slices. Why am I not going after a specific Chip maker? because their fortunes depend too much on technological changes and extremely heavy investments to stay in the race.
WFR is losing money now and will probably have another losing quarter, that is why it now selling at under book value. And, I believe that the replacement value of WFR is around $28/share rather than the book value around 17. By the way, their losses, IMHO, are temporary due to rapid expansion and temporary glut in WFR which is rapidly disappearing.
I have stated on the WFR thread that I believe this stock will have seen $100/share before the end of 2000. Why? I believe that the earning power of the massive expansion coupled with periods of wafer shortages about 18 months down the road will cause them to bring close to $4 per share to the bottom line. At that point, the smart market will attach to the company going forward growth rates in the 20 to 25 % and $4 times that PE of 25 (plus some giddiness excitment and over enthusiasm) will bring the stock to 100.
When and how to buy?.
Well, I happen to think that WFR will go somewhat lower and become cheaper, the nature of bear markets is that they present unusual opportunities, and I think Don started this thread to try and indentify such. So, my startegy would be to buy just a little here, and then maybe a little more late in February early March, and proibably the last instalment in late June. Now, I do not know how low it will go and what gyrations WFR is going to undergo between here and nirvana. From time to time I think it goes over board and I may increase my return with selling covered options, but these plays do increase you risk of not playing the whole game from 15 to 100.
Zeev |
