johnd - you are absolutely right. What you say about the net shareprices having huge growth priced into them is a given.
What is perhaps less often acknowledged, is that MSFT also has huge growth priced into it's stock. Unless MSFT can show that it will grow at a very high rate, the multiple will be taken down.
If you look at money flow, huge amounts have been moving out of MSFT in the last 3 weeks or so. I think it's a combination of things: fears that MSFT will not have the kind of extraordinary growth that justifies a continued high p/e in an environment where gradually p/e's will decline to less lofty levels (the past 3 years really overdid the p/e levels in growth stocks); the sensation that MSFT is vulnerable in a way it hasn't been for awhile - increased competition, trial etc.; since MSFT looks to stagnate short term as far as shareprice appreciation, money can be better deployed in other stocks.
With this amount of money flowing out, unless MSFT gives the market some reason to believe that explosive growth is just ahead (by making some grand announcement of a new initiative), it will be very difficult to turn it around and have it break the recent high of 95. As I've mentioned on this board several times, 67 1/2 looks to be the rock bottom support. It is hard to imagine it falling below that. If it breaks below 80, it could sell off to 74, but I expect it to basically be range bound for quite a long time.
I wonder if the market is not getting ready to change it's orientation from the last few years. The move to cyclicals appears real, in so far as something on the order of 40 billion has moved into them. A lot of it came from the kind of leaders that did very well the last few years. Sure, we may say - growth in cyclicals is just not exciting, and soon money will be back in the old high-growth tech leaders. But what if the market flattens out (brings tech p/e's down a bit, and the "value" stocks up a bit), and simply goes up a lot slower than in the past. This is not unreasonable to suppose - 20% yearly growth in the market cannot go on indefinitely - it must pause to let the economy, profits and real growth catch up. This does not mean the bull market is over, but perhaps, it'll now underperform - maybe only 5-10% growth of the overall market? Are we beginnig to see the first stage of such a transformation in the broad market? Anyone want to weigh in? |
