re: "do the rules regarding AMAT's price to sales ratio apply? "
I expect a new trading range to become established, in about the 20-26 range. If the overall market perks up, then we might push back up into the 26-32 trading range, but based on the last few days action, that's unlikely. AMAT hit 26 twice today, and then slid sharply lower. This looks like the old floor becoming the new ceiling. I've had 26 in mind for a long time as the beginning of Value Territory, so that's why I started buying. Today, it looks like I began buying too early. Big Bucks changed his mind (about when he would begin to buy), and looks smarter than me at the moment.
Yes, when Morgan says he has visibility, and sees a definite end to the downturn, then the stock will abruptly gap above 40. You can use forward sales and earnings in your calculations when the company says they are sure things are looking up. The day before that happens, I should be fully invested, with much of my buys near the bottom, if I do things right. I'll also downgrade AMAT from strong buy to hold. Before that, we will have a series of false rallies, as the momentum guessers manufacture hope out of smoke and mirrors.
Political uncertainty and paralysis is going to last for the rest of this President's term. Latin America, which is very dependant on global capital flows (because they don't save, so any business needing capital, or government financing a deficit, goes to Citicorp), is about to see credit dry up, interest rates soar, capital spending halt, and governments forced to slash budgets just as their economies' start contracting. And the IMF is out of money and out of credibility. What Malaysia was for Japan, and Russia is for Germany, Brazil will be for us. It's our turn.
Remember all the people who said, on this thread and many other places: "liquidity and rising stock prices are a self-reinforcing virtuous circle, so we can ignore valuation levels"? They were wrong. We are currently having net outflows from stock mutual funds, as individual investors continue the historical pattern of selling low and buying high. There were net outflows during every market bottom in the last 20 years, and maximal inflows during market tops. It's simple to time the market. Just do the opposite of the herd. All it takes is courage and patience.
Remember the people who said the beaten-down techs would be the safe haven when investors realized KO wasn't really worth a PE of 50? They were wrong. KO went down, and so did AMAT. Cash and bonds (that is, U.S. Treasuries, not junk bonds or Russian government notes) are the safe haven.
Of course I'd like to buy all my ZPJAH as the stock hits its absolute bottom, and I'm disappointed that the stock slid below long-term support just as I took a position. The bottom will be just as the news and visibility are worst. It will be obvious in retrospect. Things are bad enough now to begin buying. If we have a recession in 1999, and the President gets impeached, and PC sales stall, and AMAT announces another round of layoffs early next year, the stock could hit 13. Still, this is only the beginning for me. I've got 3000 shares of INTC that I'll be gradually selling and converting into ZPJAH in increments as long as AMAT is below 26. I'm prepared to spend the rest of 1998 and all of 1999 slowly doing this. |
