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Politics : Ask Michael Burke
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To: Dave Feldman who wrote (33628)10/9/1998 11:08:00 AM
From: eabDad  Read Replies (3) of 132070
 
Dave:

Chip equipment valuations at the low point trade at a discount to both book and sales. Historically, equipment stocks fall into three valuation camps: a star gaining share, the average company maintaining share, and the dog.

A price at 0.7-0.8x book value or 0.5-0.6x sales for the downside risk are multiples for an average equipment stock. A leader gaining share can be 40-50% higher and a dog can be half that. Also keep in mind that 1999 revenues and book value will be lower than the current trailing twelve months.

On the flip side, valuations at the peak of the cycle (4 years from now) will be 4-5x sales, so the potential return is there. Revenues should be near double current levels. Good math, but a long wait.

I think it may be too early to buy any stocks associated with the front-end fab, unless you buy a star gaining share at an incredible value. Given the 6 year business cycle, there will be plenty of time to enter for the ultimate run up.

Z
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