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Technology Stocks : Newbridge Networks -- Ignore unavailable to you. Want to Upgrade?

To: Doug who wrote (17086)	2/16/2000 12:25:00 PM
From: Tunica Albuginea	Read Replies (2) \| Respond to of 18016

Barron's,ÿ February 14 : CSCO: Nasdaq Hits a New Record While the Dow Corrects ÿBy Andrew Bary ............The tech sector, meanwhile, remains largely immune to the ÿÿÿÿÿÿÿÿÿÿÿÿÿ ills in the rest of the market, helped by strong inflows into ÿÿÿÿÿÿÿÿÿÿÿÿÿ aggressive-growth mutual funds and bullish profit news ÿÿÿÿÿÿÿÿÿÿÿÿÿ from companies such as Cisco Systems, which last week ÿÿÿÿÿÿÿÿÿÿÿÿÿ reported a 47% rise in earnings for the January quarter. ÿÿÿÿÿÿÿÿÿÿÿÿÿ The Nasdaq hit a record 4485 Thursday, before a broad ÿÿÿÿÿÿÿÿÿÿÿÿÿ market selloff took down the index by 90 points, or 2%, to ÿÿÿÿÿÿÿÿÿÿÿÿÿ 4395 on Friday. The Dow suffered a similar percentage ÿÿÿÿÿÿÿÿÿÿÿÿÿ drop Friday, falling 218 points.............. .........Fans of Cisco Systems were trumpeting its potential to ÿÿÿÿÿÿÿÿÿÿÿÿÿ become the first $1 trillion company in market value ÿÿÿÿÿÿÿÿÿÿÿÿÿ following its blow-out profit report on Tuesday. ÿÿÿÿÿÿÿÿÿÿÿÿÿ Cisco rose 9 13/16 to 131 last week after hitting a record ÿÿÿÿÿÿÿÿÿÿÿÿÿ high of 136 1/4, giving the company a market value of $475 ÿÿÿÿÿÿÿÿÿÿÿÿÿ billion. Cisco last week became No. 2 in market ÿÿÿÿÿÿÿÿÿÿÿÿÿ capitalization after overtaking General Electric, which has ÿÿÿÿÿÿÿÿÿÿÿÿÿ a value of $440 billion. Microsoft has the largest market ÿÿÿÿÿÿÿÿÿÿÿÿÿ cap at $554 billion. ÿÿÿÿÿÿÿÿÿÿÿÿÿ Cisco, which is up more than 400-fold from a ÿÿÿÿÿÿÿÿÿÿÿÿÿ split-adjusted price of 31 cents a share at its initial public ÿÿÿÿÿÿÿÿÿÿÿÿÿ offering exactly a decade ago, now has to roughly double ÿÿÿÿÿÿÿÿÿÿÿÿÿ again to hit the magic $1 trillion mark. Considering that ÿÿÿÿÿÿÿÿÿÿÿÿÿ Cisco rose 131% last year after gaining 150% in 1998, ÿÿÿÿÿÿÿÿÿÿÿÿÿ another double doesn't seem like such a stretch. ÿÿÿÿÿÿÿÿÿÿÿÿÿ Cisco now is deemed a better bet than Microsoft to hit $1 ÿÿÿÿÿÿÿÿÿÿÿÿÿ trillion first because its profit momentum is stronger. Cisco ÿÿÿÿÿÿÿÿÿÿÿÿÿ had pro-forma profits of 25 cents in the quarter ended ÿÿÿÿÿÿÿÿÿÿÿÿÿ January 31, up 47% from 17 cents a year earlier, on a 53% ÿÿÿÿÿÿÿÿÿÿÿÿÿ rise in revenues. Microsoft's profits per share were up a ÿÿÿÿÿÿÿÿÿÿÿÿÿ sizable 31% in the fourth quarter. ÿÿÿÿÿÿÿÿÿÿÿÿÿ But one institutional investor says huge further appreciation ÿÿÿÿÿÿÿÿÿÿÿÿÿ in Cisco now looks more problematic given the ÿÿÿÿÿÿÿÿÿÿÿÿÿ combination of its monstrous market value, enormous ÿÿÿÿÿÿÿÿÿÿÿÿÿ price/earnings multiple and large price/sales ratio. Cisco ÿÿÿÿÿÿÿÿÿÿÿÿÿ trades for about 130 times projected profits in its July ÿÿÿÿÿÿÿÿÿÿÿÿÿ fiscal year and at 27 times sales. ÿÿÿÿÿÿÿÿÿÿÿÿÿ "If Cisco appreciates 15% a year for the next decade, it ÿÿÿÿÿÿÿÿÿÿÿÿÿ will quadruple to $2 trillion in market value," the investor ÿÿÿÿÿÿÿÿÿÿÿÿÿ says. Since Cisco's outstanding shares continue to rise ÿÿÿÿÿÿÿÿÿÿÿÿÿ because of acquisitions and option issuance, a quadrupling ÿÿÿÿÿÿÿÿÿÿÿÿÿ in Cisco's share price in the next decade could mean an ÿÿÿÿÿÿÿÿÿÿÿÿÿ eightfold rise in market value to $4 trillion. This investor ÿÿÿÿÿÿÿÿÿÿÿÿÿ says that if Cisco possesses a P/E of 40 on its 2010 profits, ÿÿÿÿÿÿÿÿÿÿÿÿÿ it will have to earn $100 billion after taxes ($4 trillion ÿÿÿÿÿÿÿÿÿÿÿÿÿ divided by 40), up from an estimated $3.5 billion this year. ÿÿÿÿÿÿÿÿÿÿÿÿÿ Even if you assume a $2 trillion market value in 2010 ÿÿÿÿÿÿÿÿÿÿÿÿÿ because Cisco's share count holds steady, the company ÿÿÿÿÿÿÿÿÿÿÿÿÿ needs to produce $50 billion in profits. ÿÿÿÿÿÿÿÿÿÿÿÿÿ This is a tall order, even for a company as dominant as ÿÿÿÿÿÿÿÿÿÿÿÿÿ Cisco, given that profits for the entire tech sector of the ÿÿÿÿÿÿÿÿÿÿÿÿÿ S&P 500 were less than $60 billion last year. Can Cisco ÿÿÿÿÿÿÿÿÿÿÿÿÿ sell enough networking and other equipment to generate ÿÿÿÿÿÿÿÿÿÿÿÿÿ $50 or $100 billion in profits a decade from now? That's ÿÿÿÿÿÿÿÿÿÿÿÿÿ possible but unlikely. Investors now purchasing Cisco ÿÿÿÿÿÿÿÿÿÿÿÿÿ shares ought to realize that those huge numbers are ÿÿÿÿÿÿÿÿÿÿÿÿÿ effectively being discounted in its lofty share price. -----------------------------