Ramsey: re: "This is rather troubling if everyone is assuming that 1998 is just a bad year and 1999 will be back to business as usual. The current stock prices certainly reflect those numbers. What if it takes longer than 1999? Using AMAT as an example, FY 1997 earnings were $1.39. FY98 is now at $1.38. If FY99 is eventually revised dn to $1, what type of a GROWTH stock do we have here? What PE should we be assigning to this cyclical? Which year's E should we use as a base yr?"
I think, up until 3 weeks ago, when the stock was making its last of 7 failed attempts to break above 40, that most people were thinking that growth would return in 1999. Now they're not so sure. And neither am I. I just assume that if I buy at the point of maximal despair, and hold, that eventually AMAT will start being treated like a growth stock again. "Eventually" is as precise as I can be.
Yes, EPS for 1998 will be 1.38, or lower. Last August, the consensus estimates for 1998 was about 2.70. Here's my 1999 earnings forecast, guaranteed to be accurate until I change it: EPS will be $1.50, plus or minus $1.00.
When people start calling this a cyclical, and forget the long-term EPS growth rate, then it's time to buy.
I don't use E. I use sales. Companies' can't play the games with sales that they can with earnings and book value. Also, it varies less. If you must use E, then use a 5-year moving average, to smooth out the waves in the rising sine wave of earnings vs. time.
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