David,
Thank you for your reply. Vis-a-vis Buffet, please note the following press release:
BERKSHIRE HATHAWAY INC.
NEWS RELEASE
FOR IMMEDIATE RELEASE February 3, 1998
In a press release today, US Airways announced its plan to redeem the last of its outstanding preferred shares. Warren Buffett, Chairman and CEO of Berkshire Hathaway Inc. which through its subsidiaries currently owns $358 million of US Airways Series H Cumulative Convertible Preferred Stock....
So while I don't defend Buffett as infallible, I think he did hang on
to some USAir.
However, on to Adaptec, as I would like to respond to your question "what reason is there for ADPT's stock price to go up?"
Of course, I don't know if it will go up or not, though I am betting that it will. No business has a bye into future prosperity, but I happen to like Adaptec's prospects. I am not a techie, but I tend to think that ADPT is in a very important growth segment of the industry, and that the general techonological issue of transporting data at ever increasing speeds over various platforms will become increasingly important. I don't, for example, think of SCSI as a "luxury" which is being edged out by cheap PC's. I suspect that higher levels of performance will become increasingly mainstream.
In any event:
1.) I like the segment in which operates, its business prospects looking out, and the aggressive manner in which it is repositioning itself;
2.) ADPT is cheap relative to the market and its historical norms;
3.) It is trading at about 8-9 times cashflow (before acquisitions), 11ish X earnings, and has consistently averaged about a 25% return on net worth over the last 5 years; as a matter of fact its book value has increased an average of 37.5% per year over the last 5 years.
4.) I think its management has proven they know what they're doing;
5.) The weekly chart, though not a thing of beauty, indicates that the shares are highly oversold;
6.) Presumably most bad news is in the price;
7.) Its web site is one of the best around, and any company that can present such an organized and informative site gets my vote, reflecting, I believe, an organized and informed management.
As to the reduced growth rate, one is historical the other projected, i.e. fact and guess. It wouldn't surprise me at all if their future growth rate vastly exceeded projections. If it didn't, the stock is still cheap at .5 PEG.
Added together, the elements of this story represent an attractive reward/risk scenario, in my opinion. The fact that the street "hates" ADPT now is what gives rise to present opportunity. Anyway, they're all fired up over Excite, Yahoo, etc., giving some of us the chance to acquire this one.
BTW, I'm not in this to wait 3 years either. I'm betting the stock will see 30+ by October, based on a return to historical PE multiples.
Of course, all of this merely my opinion.
JG |
