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

To: the dodger who wrote (29467)	8/5/2000 1:32:47 PM
From: Bruce Brown	Read Replies (1) \| Respond to of 54805

Dodger, I understand your concerns. Do you know the fundamentals of Intel outside of the P/E ratio? What about the P/E expansion of the aggregate stock? Intel shares cost $63 and change per share on June 30, 1995 (split adjusted - $7.89 a share). That gives us about a 692% gain to date. Compare that to things like Dell, Cisco, Microsoft, Sun, Siebel, Oracle and others. Here are a few things you can read about my thoughts and others thoughts on the dominant large-caps, the reasons premiums are paid for them and even a post on how to decide when a dominant company should be sold. First thing to read = the latest quarterly Intel report review (smokin'): fool.com Key metrics include: •Revenue growth of 23% •Gross Margin of 60.4% (without the $200 M motherboard charge, the gross margins were 62.9% - in both cases, these results yield improving margins) •Net Margin of 23.1% •Cash-to-debt ratio of 10.9x •Foolish Flow ratio improved to .87 What about Cisco's latest quarterly report? fool.com • Revenue growth of 55% • Gross margin of 64.5% • Net margin on a pro-forma basis of 20.4% • Cash-to-debt ratio = Cisco has no debt • Foolish Flow ratio improved to .87 If you want to read my thoughts on premiums paid for a gorilla with those kind of metrics and my addressing the issue of P/E ratios without me having to repeat them here, then click on this: boards.fool.com If you want to read an excellent article about deciding when to sell a dominant large-cap, then read this: fool.com You'll note that neither Cisco or Intel fall into the category of large-cap dominant gorillas that one wants to pry their fingers off of at this stage in the game. If you can find a list of 50 companies that match or beat the fundamental numbers that Cisco and Intel chalk up quarter after quarter - we're all ears and eyes. Otherwise, if you feel that the premium one pays to own a company that basically puts up metrics like this is not justified - I'm afraid you will have to use a more convincing argument than P/E, market cap and Quicken.com growth projections. We are talking about two companies that, along with GE, have the potential to become the first trillion dollar companies in the history of American capitalism. No doubt that both are not stocks that are going to go from $3 a share to $100 a share in the next year or two, but in terms of core holdings that provide a preservation of capital as well as a healthy growth rate - the CAP seems justified to me for their dominant positions as well as their fundamental numbers that have improved a great deal since 1995. That's good management. That's good business. That's good investing. The market does a pretty decent job of finding a valuation for the large-caps. If the market is way off the mark, the eventual valuation will be found. Each investor has to decide and balance the two together to make a decision as to whether or not 'value' or 'attraction' is found in both Cisco and Intel. I remain glued to my shares. BB

To: the dodger who wrote (29467)	8/6/2000 5:50:57 PM
From: alburk	Read Replies (2) \| Respond to of 54805

This highlights an important point that has been touched upon by Mike Buckley and others--Valuation should not be ignored. Anyone who has read "Common Stocks and Uncommon Profits" by Philip Fisher may remember his discussion regarding tech investing. To paraphrase--very few winners and lots of losers and the average investor is ill-equiped to succeed in this environment. Granted the Gorilla Game attempts to address this risk and Mr. Fisher was referring to the embryonic period of the '70s high tech revolution. On the other hand, Paul Johnson is a little flip with the Comment, "We also say don't get too worried about valuations because a Gorilla will always outdo your expectations for how valuable it can become." While this may be true, it has a little too much 20/20 hindsight in it. It's going to take a few years and a ton of growth for a company like Juniper with a $45B market Cap and 1000 p/e to catch up with its valuation. I hope it's destined to be a silver back of the likes of CSCO. I suspect it's a little too early to call. Valuations these days are much different than the early and mid 90's when gorillas could be purchased at reasonable PEG ratios. It seems that valuations should be given more emphasis. Perhaps we are entering a period in which we have historic opportunities for wealth--the Next Generation Network. But my sense is that current valuations also present historic opportunities for losses. Though I'm a huge fan of the GG, I think valuations deserve more consideration--perhaps a separate chapter in revision no. 2. Andy