Katherine,
RE: Please do not forget, this downturn is NOT a repeat of 1996. Macroeconomic conditions are worse. The semiconductor downturn is worse. This is much more comparable to the early 90s or mid-80s than to 1996.
I agree 100% that this is not '96 revisited. However, if you make the case that this downturn is more akin to the early 90's or mid 80's slowdown, you should also point out the growth that occurred in this sector thereafter. This sector could be compared to a compressed spring; the more it compresses the higher it will go once released. We just had a month of historically low capex going back to '93. The spring is compressing. Add to this the recent moves on the part of the Japanese to reform their banking system and greater liquidity by the US and Germany, and the picture is not all that bad going forward for this sector.
Historically, these stocks have had enormous runs after dry spells of capex. If one thinks that pattern will not repeat(as many posters on this thread apparently do) do not buy AMAT or any other equipment stock. I for one, have my bets placed and have, and will be adding to my position in this sector.
Brian
Regarding AMAT's valuation:
If we look at another gorilla of it's industry, INTC, we can see that the market is giving one dominating company the market cap of the entire revenues for the sector and then some. IC revs for 98 should come in at about 130B. Currently, INTC sports a cap of 150B. Should the market apply the same rule to AMAT(who by the way, is gaining market share while INTC is losing some of theirs), we arrive at a market cap of about 45B for the equipment sector in 2000/2001, assuming the projections are even remotely correct. This would give AMAT a price of about $110 a share sometime in 2000. Just some random thoughts. |
