Convince me not to sell all my CSCO today:
I'm seriously thinking about doing so, because:
1. TA: the stock has hit the 117-120 range 4 times this year, and backed off: once in Feb., twice in April, and today. Looks like a resistance line. If we don't set a new high (above 120) in the next few hours, this will be confirmed.
2. the overall market is seriously overvalued. I know this is old-fashioned of me, to pay any attention to valuation levels or long-term historical patterns, but it makes me nervous that the trailing PE of the S&P 500 is 35, when the long-term range is 10 to 20. Yes, yes, even A.G. has bought into the "New Economy" idea, but he's just succumbing to irrational............you know what.
3. There appears to be an ongoing sector rotation out of big cap into small cap, out of tech into cyclicals.
4. Rising interest rates should compress stock PE ratios, with the highest PE stocks falling the furthest.
5. P/S ratios: 5 year range: 2.9-19; now: 17 (from baseline profiles)
P/CF ratios: 5 year range: 16-78; now: 71
6. P/E ratios: 5 year range: 15-91; now: (trailing) 84, (forward) 65
I'm using a trailing 12M earnings of 1.40, and a forward 12M earnings (from first call consensus, for year ending July 2000) of 1.82
7. earnings growth, av. last 5 years, is 42%. The long-term future expected earnings growth is 30%. This gives a PEG (using forward earnings and expected growth rate) of 2.
8. the above means this stock is seriosly overvalued, and is more likely to decline 20% before it gains 20%. That is, I think I'll be able to buy it back at about 95, before the stock runs away from me.
9. Or, maybe I'll buy far-out-of-the-money 2002 calls (available soon), when the stock hits 95. I've only made 6 times my original investment since April 1997, and I'd like to do much better.
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