Semi-Equips - Buy when BLOOD is running in the streets! Message Board

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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets!

LRCX 144.58

-1.9%

10:32 AM EST

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To: Jacob Snyder who wrote (5515)	5/23/1998 8:02:00 PM
From: Proud_Infidel	Read Replies (1) of 10921

Jacob, First of all, let me say good post. But I must take exception with one thing. Giving AMAT a fair valuation of PSR= 2-3.5 is unfair and not realistic given market fundamentals. INTC and CSCO trade at steep premiums to their competitors. I won't use MSFT since that is a true monopoly and does not make for a good comparison in this case. However, one must look at why they trade a premiums to their competitors. INTC and CSCO both have a proven track record of making $$ even in the worst of times. COMS, AMD and the like have been having difficulty while the 2 giants are making $$(and good $$ mind you) even in a downturn. This alone warrants a premium. Size is another reason to give these 2 a richer valuation. When threatened with a new paradigm, these cos. have mgts which can react accordingly and turn on a dime. Cannot be said for their competitors which consistently lose market share. Strength begets strength and the colossus R&D budget of INTC alone is larger than the total revenues of some of its competitors. In AMAT's case, this sector is notorious for valuing companies based on a PSR measure, since during downturns their is no e to place under the p to come to some fair value. Like INTC and CSCO though, AMAT has proven itself through downturns and has a history of making $$ when others are hemmoraging it. It is my belief and expectation that the Street will place AMAT in a different corner than the rest of the sector. To date, this has been the case with AMAT having a substantial preium(using PSR only) to that of its competitors. To say AMAT should trade at a PSR of 1 because it has done so in the past is the one flaw I can see in your logic. Looking at PSR only and assigning a PSR of 1 would yield a value of ~$13. This is fine as part of your analysis but but you are ignoring earnings. AMAT at $13 would be trading at a p/e of about 9 using '98 earnings a p/e of about 7 using next years earnings. Earnings which by the way have been racheted down several times so will prove exccedingly low should any upturn come into the picture. Regards, Brian

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