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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Dinesh who wrote (22606)	4/12/2000 11:16:00 PM
From: John Stichnoth	Read Replies (1) \| Respond to of 54805

I expect that QCOM's growth rate in 5 years will still be comfortably higher than the market's, thus justifying a continued high relative P/E. Page 124 of RFM shows the "Death of a Gorilla" CAP chart. The chart may be misleading, though. The baseline is not zero, it is some positive return equivalent to the market or some other mature company. All companies making money have some price, and perhaps some base level of growth (unless they implode from mismanagement, of course, but that is another issue). A "dead" gorilla should transform into an everyday company. The prime example of this is IBM, as their mainframe dominance transformed into a niche play from a central position in computers. On page 126, RFM lists a number of companies that were overtaken by external tornadoes, and failed to cope with them. As GGers we watch for that external threat, and react if the threat is real. In the meantime we hold, because to do otherwise would be getting off the bus too early. Explicit in the p 124 chart is a slow decline of the Gorilla's PE from superior to average. At some point the Gorilla's growth will slow. The chart shows a 6+ year decline in justifiable PE, after growth starts to slow. So, in the case of QCOm we'd have some time after evidence of slower growth to exit. At this point, there is no indication that QCOM's growth will slow in the next 5 years. That's the way I read it, anyway. Best, John This may actually be a very dumb question. But, if 5 years hence QCOM were to mellow down to say 30% EPS growth, what would be a reasonable PE in a reasonable market ? Why do I ask ? Because if your answer is 27, then we shall not expect the stock to move for next 5 years. But that sounds a bit absurd. Perhaps you guys can shed some light on the subject.