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Technology Stocks : Intel Corporation (INTC) -- Ignore unavailable to you. Want to Upgrade?

To: Robert Douglas who wrote (92861)	11/19/1999 5:07:00 PM
From: Michael Bakunin	Respond to of 186894

I presented the model to attempt to mark an upper bound either on Intel's expected return or its valuation. As you have noted, this is not the forum to argue general matters like the level of the stock market or the utility of dividend discount models. A correction: my cutoff is at 5% of future GDP, assuming constant, continuing GDP growth. That gives you twenty years of high growth before revenues hit 5% of GDP. To address your specific concerns: 1) "ignore that portion of income that is reinvested" This funds high growth. Payout then multiplies. Paying out more while maintaining high growth seems unrealistic. 25% initial payout bumps the implied discount only to 12.5%. 2) "bias toward nearby payments" Few dispute that a dollar today is better than a dollar tomorrow. The only question is how to discount future payments; discounting at a constant rate is a simple method. 3) "stocks are ridiculously overpriced" Depends. At 5% long-term dividend growth, investors expect returns of 6% (using a constant-growth model). At 10%, it's 12%. Do you expect more? 4) "dividends in the first period [are].. practically irrelevant" The only money you make off stock 'til you cash out is from cash dividends. If those are low, then terminal value dominates any present value calculation. 5) "9 times earnings. Way too cheap" For an abstract company growing at 5%, it seems fair. Terminal value is based on the canonical constant growth DDM. 6) "horribly biased" It's a two-stage dividend discount model. It's incredibly sensitive to inputs, but not biased. Thanks for the considered replies, -mb