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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Katherine Derbyshire who wrote (33882)	1/21/2000 12:33:00 PM
From: Proud_Infidel	Respond to of 70976

Katherine, You are entirely correct:-0 I would not be invested in this sector if the M was in place:-) BK

To: Katherine Derbyshire who wrote (33882)	1/29/2000 3:21:00 PM
From: Jacob Snyder	Read Replies (3) \| Respond to of 70976

AMAT fair value: Assumptions: 1. there will be no exogenous shocks to the market, no recession, and no industry downturn in 2000 or 2001. 2. There probably will be a compression of PE ratios across the stock market, and especially in the highest-PE stocks. 3. AMAT will make $3.74 in calendar 2000. This is $0.10/Q above the consensus estimates. However, AMAT has beaten estimates for each of the last 6 quarters, and I expect that trend to continue, as long as the industry upturn is intact. 4. companies are fairly valued at: PEG= 1 = (stock price/forward 12Month earnings)/longterm EPS growth rate. 5. forward earnings (and any calculations based on them) are useful only when they are reliable, which only happens in the middle of upturns. At the troughs and peaks of the cycles, those numbers are highly unreliable. 6. We are currently in an upcycle that can be expected to last at least through 2001. 7. the longterm EPS growth rate for AMAT will be 25%/Y Calculations/Conclusions: The 5-year price/sales range 1-11.5 Today's P/S is 10. That range is huge, and we are near the top end of it. When this cycle ends (2003??) investors are going to get seriously hurt. No matter what I do, I'll be out (again) at the first whiff of semi over-capacity. I don't expect this to be a problem for the next 24 months, at least. 130/3.74 = a current forward PE of 35 (130/3.74)/25 = a current PEG of 1.4 At the current stock price, the company would need a forward PE of $5.20 to have a fair value PEG of 1. When will the company have a forward PE of $5.20? My guess (emphasis on that word: guess) is sometime between June and December 2001. That means that the next 18-24 months of growth is in today's stock price. To put it another way, today's fair value price for AMAT is 94. That is the price at which a forward E of 3.74, and a longterm EPS growth of 25%, gives a PEG of 1. I'll buy the stock when we get to that price. If we drop another 20% below that, I'll start buying 2002 or 2003 LEAPS, at strike prices 30% above the stock price. I'm doing this calculation for a list of growth companies (INTC, TXN, CSCO, MDT, BDX, GDT, WCOM, EMC, EGRP) that I'll buy if I get my price. Until then, I'll just keep amusing myself by daytrading QQQ puts while sitting on a pile of cash and waiting for the Big Kahuna. The end is nigh.