CSCO happens to be a wonderful company. However, in order to invest in it or DELL, or many of these other highly valued companies at these levels you have to assume that P/E expansions will continue indefinitely. For me, it seems that a stock that has appreciated 300% in the last 12 months, primarily through an expansion of its P/E is due for a rest.
I agree with Jach that CSCO will revert to its historical PE, (also known as "reversion to the mean" in statistics) which means it will fall at least 50% or it will still be at this price a couple of years from now.
You may want to look at a history of blue chips like JNJ, MRK and others in the last secular bear market of 1973-74. If you believe bear markets have disappeared, the best case scenario is no price increase for a couple of years. The most likely, IMO, is a decrease of 50-70%.
BTW, if CSCO goes through its 50 day moving average, 95, for at least a few days, the institutions will start dumping it and at that point the decline will start feeding upon itself.
You're right. Stock prices reflect recent market performance, also known as "momentum". Unfortunately, prices usually go to extremes in both directions. They've had their extremes on the upside. I expect the downside to be just as extreme. |
