Graham and Doddsville -- Value Investing In The New Era Message Board

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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era

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To: porcupine --''''> who wrote (470)	7/6/1998 5:26:00 PM
From: porcupine --''''>	Read Replies (1) of 1722

[Wayne: This one is in your bailiwick. The following is feedback from a GADR reader. I'm not sure which of my comments it does not "support": that GM has not been "full cycle" profitable, or that free market forces will inevitably make it so. It's bottom line appears to be that GM is currently worth $553, which would certainly support my view that GM is "Value Heaven". My problem (and Graham's) with this kind of analysis is that it projects both earnings growth rates and average interest rates 30 years into the future. Because of exponential compounding, a slight variation in these assumptions will produce a very wide divergence in result. For example, a discount rate of 5.5% annually may turn out to be low, if the monetary spigot is turned off. And, 8% annual earnings growth might be safely predictable for chewing gum or soda pop (although I am skeptical even of this). But, it certainly seems like a brave assumption to project that the demand for a big-ticket item like a car or truck will grow at a rate much faster than global GDP is likely to grow. Your analysis is always welcome. Reader letter follows:] My research doesn't support Russell's comments. Chrysler Ford GM Daimler Toyota Price $43.38 $63.50 $70.50 $95.19 $51.63 Price/Earnings 10.74 11.3 8.94 25.73 24.01 Book Value/Shr $17.52 $25.04 $37.00 $31.00 $24.30 Earnings/Share $4.04 $5.62 $7.89 $3.70 $2.15 ROE 24.7% 23.1% 27.9% 12.0% 0.0% Price/Bk Value 2.48 2.54 1.91 3.07 2.12 Debt/Equity 2.1 7 8.3 1.8 0 Frcst Earnings $5.00 $5.29 $8.06 $5.01 $1.64 Forecast Growth 8.3 8% 8% 17% 7% Current sales vs. Avg. -15.0% -24.5% -20.7% -24.4% -23.9% Current productivity vs. Avg. 6.1% -124.0% -20.9% 740.5% 462.3% Cash flow per share $10.50 $12.18 $33.60 $11.25 $4.20 Cash flow NPV@5.5%, 30 Yr. $120.45 $142.12 $553.48 $258.33 $38.18

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