Jeff,
Are you saying you would sell off Jabil specifically,
or are calling on investors to sell off stocks in the
ECM sector in general? To me key to successful investing
on the long side is future earnings estimates being
raised, not whether analysts are playing games
regarding upgrades, or downgrades for that matter,
without accompanying changes in earnings per share.
Your call to sell Jabil is deeply counterintuitive given
multiple analysts upgrading of future EPS, and the fact
that the rise in price was accompanied by heavy volume.
One of my fundamental touchstones is that rise in volume
precedes movement in price of the stock, and I believe we
saw that today in Jabil, with 1.6 million shares traded
vs. yesterdays volume of 453K accompanied by today's
gain in share price. In other words, the volume quadrupled
accompanied by a rise in price of 1 3/8 over the previous
day's close and this despite another huge downdraft
in Nasdaq stocks and serious weakening in former Nasdaq
darling stocks. This positive movement, which was counter
to today's market action is not a call to sell Jabil,
but indeed, contrary to your opinion, a call to
purchase the underlying security IMHO because strength
in the face of a general market decline represents true
investor and institutional interest and hence continued
future buying power.
Your call to sell Jabil is also counter to what an
investor should consider regarding proper risk management.
As an investor, I would gladly invest in a stock with a
lower return if commensurate to that return, risk is
commensurately lower...ie a high return, high volatility,
high risk stock, should be shunned if a stock with lower
return, but even much lower risk can be found.
As we both know general market volatility is rising.
100, 200, 300 point intraday swings in the market are
becoming fairly commonplace due to worldwide economic
instability. In relation to increasing overall market
volatility, Jabil's volatility and hence market risk
is actually falling. Hence a bet on Jabil is superior
to betting on the market overall. Jabil is also a
superior bet vis-a-vis the market given that S&P 500
PE is about 23 while growth in earnings is far south
of that, or about one half. Jabil's position is exactly
opposite, present PE is roughly 1/2 of projected future
growth.
Another way to measure risk is the spread between future
expected earnings and present PE accorded to those earnings.
Coca-Cola is to me a high risk stock given that it's selling
for a PE of 25 or so and it's growth rate is only 15%. So
despite past steadily and dependably increasing earnings,
KO carries an inordinate amount of risk to me given the huge
spread between future earnings and present day PE. This
risk is simply not present in Jabil as a stock, and as
brought out by the recent Microsoft investor article on
the ECM sector, present day risk in Jabil is very low compared
to future projected earnings and growth. Hence to an investor
who is risk averse, Jabil represents a better investment
risk than institutional favorites like KO, Dell, Lucent, etc.
If your call is that we are in a bear market and Jabil
should be sold, then the correct response should not be
that there are better stock candidates out there, but
that stocks as an asset class should be sold period.
This goes back to my first question - are you saying
stocks should be sold given that we are in the midst of
a bear market, or that there are better stock candidates
out there than Jabil? While I might agree with you on
the first point, I respectfully and strongly disagree
with you on the second.
|
