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Politics : Ask Michael Burke

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To: Ilaine who wrote (34698)	10/28/1998 5:22:00 PM
From: Knighty Tin	Read Replies (2) of 132070

Coby, I think you are confusing undervalued with low pe ratio. That is good old David Dreman's influence on the world. <G> A stock can have a high pe ratio if it has higher than average growth potential and higher than average financial stability and higher than average visibility of eps and better than average quality of eps and a dividend that is growing. For example, I think that Pfizer at 42 times eps is grotesquely overpriced. But I believe that Pfizer is a company that deserves a high pe ratio for its pipeline, management, relative honesty and financial condition. Along with Pfizer bulls, I consider Pfizer a great co. That isn't an argument. I just don't think it is a 42 times eps great co. I bought it with both hands when it sold for a below market pe ratio in 1993 and held it until the pe ratio hit 30 times. How much a co. is worth has more to do with the co. and with the risk free rate than with arbitrary standards like high or low pe ratios. On the market, the point is, I don't believe that the market has the eps growth, dividends, mgt., financial stability or visibility of eps to support the current high pe. Is 5% eps growth worth 23 times eps? Not unless the risk free rate is 2.2%. And it is not. MB

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