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

To: Bruce Brown who wrote (30670)	8/29/2000 9:18:46 AM
From: hueyone	Read Replies (1) \| Respond to of 54805

re:“The highest-valuation Next Generation stock is not in optics, however. It's Juniper Networks, which, in our view, is fairly priced to under priced." When Johnson made that comment on August 4, JNPR traded intraday at an average $140 per share. It is now trading 42% higher at $199 less than a month later. Make of this what you will. Best, Huey@regrettingIneverpulledthebuytriggeronthisonein May.com

To: Bruce Brown who wrote (30670)	8/29/2000 10:53:26 AM
From: the dodger	Read Replies (3) \| Respond to of 54805

"...I sold CSCO waaaay too early..." And don't think for a second that fact doesn't haunt me every day -- and that's why I posted it. I'm a valuation nut -- and that's served as a mental barrier that has denied me some very healthy market gains -- but it also has protected me from buying QCOMs at 200. So being conservative can be a two-edged sword -- (but admittedly, the greater "sin" has been being out of these high-flying names rather than being in them.) I own a few G/K (or 'wannabe') names (NTAP, GMST, QCOM (but at 62), INTC, EMC, and yes...a little CSCO since Oct1998 -- arrrggghhhh !!!). But admittedly, from the first time they appear on my radar screen, until I finally get my "buying opportunity" -- it usually works out that I should have just gone ahead and taken "the plunge". So it's hard for me to get in -- because I have to wait for a pullback in order to satisfy my mind-set. I'd love to be able to mentally justify owning JNPR -- because there's little doubt in my mind that they're the "big banana" of the core router market -- and that's a market that appears to have a very bright and long future. "...I expect Juniper will have sales of $5-7 billion by 2005..." I think this part is interesting, because this is roughly the same FY2005 revenue # in John's projection. That represents an annualized 65% growth rate -- which I won't argue with -- (actually, I agree with it -- and that's probably even more dangerous !!!(g)) But what is important, is how that revenue FY2005 is achieved, because that will affect how JNPR's future looks when they get there. If it's achieved by growing in the manner John suggested...500% - FY1999 - 250%-FY2000 - 125% - FY2001 - 63% FY2002 - 32% FY2003 - FY2004 32% - FY2005 - 32%, Then I think the valuation I assigned in my earlier post was more than fair- even generous. However, if JNPR's growth pattern is more in the 50-75% year after year, you would most likely get the benefit of much higher P/S & PE multiples looking out into the future -- because a higher growth rate would appear more sustainable -- a quality-of-earnings issue. "...The highest-valuation Next Generation stock is not in optics, however. It's Juniper Networks, which, in our view, is fairly priced to under priced...Paul Johnson, co-author of 'The Gorilla Game'..." When was that written? If it was written when JNPR was in the 100 range, then I would agree. (Like that matters.) "...I expect Cisco to reach $60 billion in sales by 2005 (all communications markets will continue to expand at or above levels of the last few years)..." I disagree here...I anticipate a higher number -- probably something closer to 80 billion -- but you may be talking strictly organic growth -- mine assumes some revenue from new acquisitions. "...But I think Juniper, since it will still be growing much faster than Cisco, will support a much higher P/S (price/sales ratio) in 2005. Probably 45-90....But the future P/S seems the toughest thing to estimate. Market valuations are so unstable." This is the place where the wheels fall off everybody's wagon. I don't think predicting a future P/S is tough at all -- I think it's impossible. Your investment dollar is held hostage to the macro-economic picture at that time, plus general mind-set of the investment community. If you -- anybody -- had (in 1995) projected CSCO to have a P/S of 25 in FY2000 -- you would have been branded a lunatic -- eventually a rich lunatic -- but still a lunatic. (g) But do I think CSCO deserves a P/S of 25 today? -- Hell no !!! I personally think it's totally irrational -- I think the entire market is irrationally over-valued, but then I remember... "The market can remain irrational longer than you can remain solvent." (John Keynes) And this is why I think G/K-style investing is important. Value is relative. The market may surge -- or it may get cut in half -- but the odds are, that the G/K stocks will continue to be valued higher than the rest of the market on a relative basis. Either way, you make more -- or lose less. td PS -- Disclaimer -- Somebody earlier asked me "what I thought of Juniper's routers." Please know that I consider myself 'technology challenged'. I'm forced to look for trends, crunch numbers, and rely on the opinions of others more 'gifted' in the tech field. That's why I read this board every day -- hoping to learn from people like Bruce, MB, DownSouth, UF, Sditto, and many, many other great posters on the board. Eventually -- slowly -- some of sinks in.

To: Bruce Brown who wrote (30670)	8/31/2000 1:02:58 PM
From: the dodger	Read Replies (4) \| Respond to of 54805

Bruce, Thanks for the references. Spent a big part of yesterday taking another look at JNPR's value and future. As you know, my major concern is/was what I consider Juniper's staggering P/S ratio. The last (and first) time I looked at them was was about 3-4 months ago, but it was hard for the "value" side of me to look seriously with such a huge number like that staring me in the face. However, yesterday I did find this interesting numerical tidbit: Juniper Price/Sales ratio Q1/98 Q2/98 Q3/98 Q4/98 Q1/99 Q2/99 Q3/99 Q4/99 Q1/'00 Q2/'00 P/S --- --- --- --- --- --- 151.57 171.55 263.56 90.98 My eyeballs had previously been fixed on the their annual P/S (171), but if you look at the most recent quarter P/S, it seems less pricey -- plus a nice (more like staggering) downward trend is suggested. So for the moment, my concerns turn away from their current valuation to their future opportunity -- namely the potential future value of the core-router market, and how big a market-share JNPR might capture. The argument seems to center around the importance of the core-router market and whether it is/isn't a large and necessary component of Cisco's future. What I'm wondering is, if it IS important, then... Until recently, it seems CSCO has remained mostly unchallenged, and allowed the luxury of picking the low-hanging watermelon. At first, (and I think of MSFT here as an example), gorillas seem mostly friendly, and use their market-dominance to develop their value-chain. But if seriously challenged, isn't this where a gorilla would flex it's dominance and then use that value-chain to protect it's turf? In the past, there hasn't been much need for Cisco to do this -- but that doesn't mean they can't -- or won't. Isn't that the nature of the beast? And if it ISN'T, then... Again, I start to wonder if there's enough pie there to justify JNPR's current valuations. I'm figuring Juniper needs about 5-7 billion of organic growth by FY2005 to justify their market-cap. (I think that's one number we pretty much agreed on.) But that would mean about a 3% haircut to CSCO's growth rate, and I can't imagine CSCO surrendering that much turf (or denying themselves that much growth opportunity) without a major battle. I guess the point I'm trying to make is this...if the router market IS important to CSCO, then I suspect JNPR will have a jumbo fight on their hands with the mother of ALL gorillas in the near future. And if it ISN'T important, then it's probably over-valued. It seems like it has to be one way or the other. And this brings up Avici (or some other nameless hot-box maker). Information on their router is at best sketchy --and only one customer to date -- Enron -- that I am aware of. But Enron field-tested Avici against both CSCO and Juniper, and at least claims the Avici router is far superior to that of Juniper's. (But Enron also has an equity stake in AVCI, so that takes something away from the endorsement.) But if that's true, couldn't CSCO solve their Juniper problem with an AVCI-like acquisition? I figure if the DOJ allows JDSU to acquire ETEK & SDLI, then would they have a problem allowing CSCO to swallow a company with no market share and only 500K in revenue? (And these aren't rhetorical questions -- because I have no idea if true or not.) And also, what about CSCO's R&D?...haven't checked their #'s, but I assume it's sizeable. And if JNPR's founders came from CSCO, then they must know these guys pretty well. And that makes me think CSCO must at least have something on their drawing board to allow them to compete. (And if nothing is in development, then I refer back to an acquisition as the solution.) FWIW -- I feel a little more friendly about JNPR's potential, but I still wonder if peaceful co-existence is really possible. I guess what I'm looking for is why you think CSCO can't -- or won't -- hobble JNPR. I ask, because I know you own both companies -- so I doubt you have an axe to grind with either company. td