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Technology Stocks : Dell Technologies Inc.
DELL 113.22+1.9%Jan 21 3:59 PM EST
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To: Lee who wrote (66655)9/22/1998 1:37:00 PM
From: Chuzzlewit  Read Replies (2) of 176387
 
Good morning Lee,

Thanks for reposting Dorrine's wonderful link.

Everybody parrots the common line that S&P values are excessive; however, it is never repeated in the context of current rates and inflation, only according to historical norms.

Yes, and that's why I like to invert the p/e to talk in terms of yields. If investors would begin to think in these terms they would get much less jittery. Let's just try an exercise. Let's suppose that we estimate that Dell's earnings will be $2.50 over the next 12 months. Given a stock price of around $60, this gives a projected earnings yield of almost 4.2% -- not too bad when you consider that the company is growing rapidly, and that one of your principal alternatives, bonds, yield a little over 5%. So how do you analyse it at least qualitatively?

Here are the tradeoffs:

1. The return is not assured --> there is risk. The greater the perceived risk to earnings (i.e. the chance that earnings projections will be less than forecast) the greater the yield the investor will demand;

2. Growth is assumed --> The greater the assumed growth, the lower the current yield, because investors are deferring current income for future growth.

Maybe if some "analysts" would begin to think about stocks in this context we might have a more rational context for discussion.

TTFN,
CTC
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