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Technology Stocks : 3Com Corporation (COMS) -- Ignore unavailable to you. Want to Upgrade?

To: KyrosL who wrote (34531)	9/25/1999 9:14:00 AM
From: Greg Jung	Read Replies (1) \| Respond to of 45548

What? I think this belongs in the previous decade. For one-way transmission of data—from host to handheld—PalmFrame costs a flat $55,000 for all server software and application development labor for as many as 10 host-screen conversions. Hardware costs for the handhelds are about $350 to $500. The Attachmate-specific AvantGo Palm Client licenses are priced at $150 apiece. Compare this to simply hooking the mobile employees to wireless internet?

To: KyrosL who wrote (34531)	9/25/1999 9:19:00 AM
From: KyrosL	Read Replies (2) \| Respond to of 45548

Essential reading for COMS (and CSCO!) investors. Here is an interesting article from Forbes. My editorial comments are in brackets []. forbes.com Overreaction By David Dreman DO INVESTORS OVERRATE the good and underrate the bad? Do they take news and trends too far by overpricing favorite stocks and underpricing others? It's not easy to prove that psychology warps prices higher or lower than they should be. One reason is that trends can be looked at as self-justifying: Until a group of runaway stocks stops moving higher (or lower), you can say that buyers were rational to keep buying (or selling). By this notion, there is no such thing as overpriced or underpriced--just good and bad timing. I don't accept such relativism. In the upcoming, first issue of the Journal of Psychology and Financial Markets (for information see investmentresearch.org), Eric Lufkin and I show that overreaction in markets is real. We looked at the 1,500 largest stocks traded in the U.S. from 1973 through 1998 and charted five major fundamentals--earnings, cash flow (in the sense of net income plus depreciation), sales, profit margins and return on equity--against three important ratios: price/book [COMS:2.95, CSCO:21.7], price/earnings [COMS:21.7, CSCO:113.2] and price/cash flow [COMS:14.7, CSCO:95.7]. We also created hypothetical portfolios of the most expensive stocks (highest price/book ratios) and least expensive (lowest price/book). We then looked back in time to see how well they performed over the previous five years, and what happened to their fundamentals over the previous ten years. We also looked at how well they did, and what happened to their fundamentals, afterwards. What became clear first was that expensive stocks had shot out the lights in the five years prior to portfolio formation, while inexpensive stocks had underperformed the market. Remember, no rule says an expensive stock has to have become that way only in recent years--it could have been high-priced for a long time (and could have shown mediocre recent returns). But in fact, expensive stocks had beaten the overall market by an average of 187 percentage points over the previous five years [CSCO: +450% relative to NASDAQ], while inexpensive stocks had underperformed by 79 percentage points [COMS:-57% relative to NASDAQ]. -------------------------------------------------------------------------------- Investors do not correctly value the prospects of good stocks or of weak stocks. If there was ever a time to heed this lesson, it is now. -------------------------------------------------------------------------------- Still looking back in time, consider cash-flow growth, an important measure of a stock's quality. It increased steadily for the most expensive stocks, from an average of 17% annually in the tenth year before portfolio formation to 23% in the final year. This is well above the market's average increase of 14%. The least expensive stocks showed the lowest cash-flow growth, averaging 10%. That sets the scene. Now, are these valuations reasonable, or are growth stocks overpriced in spite of their impressive fundamentals, and out-of-favor stocks marked down too much? To find out, we next looked at the five-year periods following portfolio formation. And lo, there is a complete price reversal in these periods. Prices of the most expensive stocks, after outperforming the market by 20 percentage points the previous year, underperform the market by 3 points in the year following portfolio formation--and keep underperforming for the next four years. Have the fundamentals of the priciest stocks dropped off enough to justify this change? They have not. Cash-flow growth slows steadily, from 23% down to 13% in year five, but always remains higher than that of the market and the inexpensive stock group. Inexpensive stocks act as a mirror image. From trailing the market by 16 points in the year before we designate them as inexpensive, they outperform in the next year by 3 points, a 19-point swing. Do their fundamentals support this turnaround? No--in fact, cash-flow growth drops from 5% down to 1% in year one of the hypothetical portfolio and keeps lagging that of the expensive stocks for the next four years. Enough numbers--but I can tell you that we found similar results for all five fundamentals using each of the three valuation measures noted above. The conclusion is that there is no consistent link between fundamentals and stock price movements. Investors do not correctly value the prospects of stocks with good fundamentals; they overvalue them. And they do not correctly value the prospects of stocks that are weak; they undervalue them. If there was ever a time to heed this lesson, it is now. Even if premier stocks like Cisco and Clear Channel Communications sharply surpass the averages in earnings growth, their stock prices could revert to the mean, meaning they would underperform. And even if unloved issues like Borders Group and Tenet Healthcare don't turn into big earnings growers, their stocks could outperform--as they revert toward the mean going the other way. David Dreman is chairman of Dreman Value Management of Red Bank, New Jersey, and author of Contrarian Investment Strategies: The Next Generation.