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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: PMS Witch who wrote (42220)	4/16/2000 11:59:00 AM
From: Valley Girl	Read Replies (2) \| Respond to of 74651

Thoughts: Item - look at the massive P/E inflation in the past few years. To me this means there is much greater intrinsic downside than there's been in past declines (true for other stocks, too). Item - the huge magnitude of the current decline makes it stand out. Item - unlike many of the others, a large fraction of the current decline is due to factors affecting MSFT specifically. This distinguishes it from the 98 decline, which was a market-wide phenomenon. Item - even for MSFT-specific declines, this is the first one where the near-infinite destructive power of the US legal system has been brought to bear. If I recall, the 96 decline was due to fears that NSCP was going to eat MSFT's lunch - like fun it was!

To: PMS Witch who wrote (42220)	4/16/2000 12:19:00 PM
From: Gottfried	Respond to of 74651

PW, PE and the price of MSFT: Jacob wants to buy MSFT at a lower PE. Since the stock price is driven by demand, there must be less demand for the stock to lower the price - given that E does not change. Alternately, demand can stay the same, but E must increase faster. The second scenario is unlikely. Faster E increase will increase demand. So what events can lower demand for the stock? External events like Friday's panic are best, because they do not alter the underlying fundamental financial strength of the company - so the stock can rebound on the company's financial prospects after the panic subsides. Internal events like an earnings miss can drive demand and hence price down, leading to a lower PE if the forward E expectation does not change. If low enough, Jacob may buy. But maybe he'll pass because now his confidence in MSFT financial strength has been shaken. He's too shrewd to buy damaged goods. The reason for MSFT relatively high PE is high demand. More and more retail investors are being trained to buy only companies with superior financials [high E growth, no debt etc]. So it is not realistic to expect stocks that fit these criteria to be as cheap as those that don't. I think we have had at least two external events driving the stock down and would not expect another. And I certainly do not wish for an earnings miss to make MSFT 'cheaper'. If you want a stock with superior fundamentals you pay more. Now is a good time to buy MSFT. Gottfried

To: PMS Witch who wrote (42220)	4/16/2000 4:26:00 PM
From: John F. Dowd	Read Replies (1) \| Respond to of 74651

PMS Witch: "Investment Style Buy high, Sell low" With this kind of objective you must be cruisin' here. JFD

To: PMS Witch who wrote (42220)	4/17/2000 4:10:00 AM
From: Jacob Snyder	Read Replies (3) \| Respond to of 74651

Thanks. I like numbers, the more the better, especially if I can find a pattern in them. MSFT, from 1990 to 1996, had a fairly stable valuation range. When investors didn't like MSFT (or the techs, or the whole market), then the stock was at a PE of 20-25. When everyone was euphoric, the stock was at a PE of 35-45. With every year after 1996, the peak PEs, and the trough PEs, have climbed sharply. Even after the recent selloff, we are still at the extreme high end of the 1990-1996 valuation range. But is that range a useful yardstick? I don't think so. The company has accelerated earnings growth in the last few years, something that big companies aren't supposed to be able to do. With the internet, and globalization, there are more growth opportunities now than 10 years ago. So, I reluctantly conclude that only the past 2 or 3 years of history has any meaning for the future. That's too bad, because it doesn't leave me with much data. Other than the current downturn (and who knows if it's over????), the only other time the stock has been out of favor in the "internet era" was Fall 1998. So, I've only got one data point (one and a half, actually), to try to establish what the pattern is. Useless. I think investors, over the last couple of years, have demonstrated that they have no idea how to value growth companies in general, and internet companies in particular. 99.9% of "analysis" (professional and otherwise) is just guessing, following the herd, and coming up with clever rationalizations. No one really knows whether YHOO is worth 10 or 1000 per share. Or whether MSFT is worth a trailing PE of 35 or 85. On the one hand, I see more growth opportunities for tech companies now than ever, and Microsoft employs the largest group of the smartest people writing software on the planet. On the other hand, the last time we had a real bear market, that went down and down and on and on, was in 1973-1974. That was so long ago, no one remembers, and the risk premium in stocks has disappeared, and lots of people seriously think that stocks only go up. The proportion of "weak hands" in the market today is at an all-time high, even counting 1929. So, I return to the one and only piece of hard historical data available, when trying to pick the 2000 bottom for MSFT: the 1998 bottom, at a PE of 38. 1.68 X 38 = 64. I'm willing to say it's a good value at 64.