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Technology Stocks : Compaq
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To: Jacob Snyder who wrote (41392)12/28/1998 5:45:00 AM
From: rupert1  Read Replies (1) of 97611
 
Jacob:

Points of disagreement:

1. Market risk. There is no absence of political leadership. If you are referring to the US, Clinton has the highest poll ratings ever, the scandals which have dogged the body politic for about 18 months are about to be put to bed (pardon the pun). There is a new congress. There will be more fed easing possibly as soon as the next meeting. Real interest rates are still high. Inflation is non-existant. Europe begins the Euro in a few days time and this should stimulate growth and economic expansion. The Asian regimes are more stable than they were last year and Japan is gearing up for recovery. Russia might prove destabilising for financial markets for a short period in the next nine months, but its fundamental economic impact will be negligible.

There will not be an earnings recession in the US. There might be an aggregate reduction in the growth of earnings. But some sectors will see earnings growth and specific companies within sectors will always have above average growth. Overall, earnings will probably slightly exceed reduced expectations this coming quarter.

2. Company Valuaton. A forward p/e of 24 would not be excessive on the threshold of increased earnings and expectations of $1.76. Most analysts would expect that CPQ p/e would float up and down as high as 30. In fact, the more likely scenario is that earnings for 1999 will be $2, $2.50 and maybe $3.

All your other points have been dealt with adequately by Sheik Aitch of the Desert Patrol.

This is not to say that I think CPQ's share price will go up in a straight line. I expect fairly regular pull-backs of $2-3 as it ascends and there may be a more substantial pullback if the price goes beyond $50 at the time of earnings or just after. So buy puts at $50, if you are nimble, but it will be risky.
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