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

To: the dodger who wrote (30882)	9/1/2000 4:01:46 PM
From: Jacob Snyder	Respond to of 54805

Thanks for that excellent posts, full of numbers and history. Comments: 1. the hardest part of comparing all those numbers, is making sure it's an apples-to-apples comparison. You can't use P/S, or P/E, to compare companies in different industries, because each industry has it's own characteristic PE range that the stocks sell in. A PE of 30 in one industry may be absurdly overpriced, but the same PE in another industry is underpriced. 2. you can't really use historical P/E or P/S ratios, when there has been a fundamental change in the industry or the company. For instance, CSCO's ratios were lower (and deserved to be) when 3COM was a serious competitor, and CSCO hadn't yet even begun to think about invading Lucent's (huge) turf. 3. P/S is better than P/E, because the Creative Accountants can't play as many games with Sales. 4. PEG is more useful when comparing between industries. But, then, you have to guess what future EPS growth will be. I recently read a long analysis of QCOM, which concluded that it is still overvalued, because they think EPS growth going forward will be only 20%. Since I think it will be twice that, I get a different PEG. 5. the numbers also have to be adjusted for the fact that interest rates have gone down steadily for the last 20 (and 10) years. What you should be willing to pay for a future income stream is a lot more, when 30Y mortgage (and other) interest rates go from 20% to 7%. 6. No one, not even the people who do it all day, understands today's (much less, tomorrow's) technology. Look at all the smart, experienced people who spent billions on satellites for phones. Look at how badly semi and semi-equip companies' routinely mis-judge demand for chips and chip-equipment 2 years out. Watching Morgan, the most experienced chip-equip CEO, make a huge investment in 300mm tools, and then have to write it off, in the last cycle downturn, was an education. 7. within that group of G/Ks, the ones that are strongly out of favor (QCOM, MSFT) haven't gone back to 1990 or 1995 valuation levels, and so I don't expect that others on the list will either, even if they go as severely out of favor. How much worse can sentiment get for MSFT? The government has you in their sights, the judge has thrown the book at you, and you will probably get broken up. And the growth area in tech is rapidly moving away from you. Hordes of your execs are leaving, and new MBAs don't want to work for you. With all that, MSFT's P/S is still triple the 1996 level. I don't see anything (other than a 1973-intensity-level bear market) that could drive MSFT down to 1991-1996 valuation levels. And that isn't going to happen. JS@occasionallyexuberant;occasionallyirrational.com