Doug, I started responding to this note yesterday when my connection failed to meet the definition of that word. -g-
I use some of the criteria you use to pick stocks for large downdrafts, but I also love looking at commodity cos that are traded like leading edge tech cos. Micron Tech has been my favorite for a long time, over several cycles. The High Tech Strategist points out that from 1984-1993, MU earned $1.41. That's total, not per year. My guess is that 1994-2003 will not reach that mark. Ah, some might say, they have already earned much more than that in 1994-1997. And my guess is that the losses from now to 2003, with occasional accidental small profits, will get them down to the buck something range for this decade. Plug those types of earnings into any dividend discount model and the only way you get a $27 stock is with an interest rate of negative 3 pct. -g-
I agree with what you say about Cisco, but the co. has proven adept at buying its way out of trouble. But that was during economic booms and the trouble was specific to them. When the IT budgets get cut, this overpriced stock is going to have problems.
The entire Internet stock area is vulnerable. Duh! Little in the way of earnings and products or services that are easy to duplicate. However, I think there is a difference between a co. selling on the net, ala Amazon, and cos who are part of the net infrastructure, ala Yahoo and Netscape. I could envision Amazon making big bucks under certain circumstances. They may not happen, but it is a store with low overhead. The infrastructure guys have no product and their service is free. Again, no barriers to entry.
I think the database cos. will hit the wall in any downturn. Oracle is most overpriced. Ditto for some of my favorite firms, Cad/Cae/Cam. An economic downturn would be deadly. MB |
