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Technology Stocks : WDC/Sandisk Corporation -- Ignore unavailable to you. Want to Upgrade?

To: limtex who wrote (16068)	10/25/2000 6:22:56 PM
From: Road Walker	Respond to of 60323

Limtex, re: "Now i've got room to get even more paranoid" Glad I could help <g>. John

To: limtex who wrote (16068)	10/25/2000 6:43:01 PM
From: Art Bechhoefer	Read Replies (1) \| Respond to of 60323

The danger is in drawing generalizations about the future direction of tech stocks, based on historic events, without looking at the details. For example, in 1987, there were no circuit breakers to dampen sudden panic selling. There are now. In 1987, at a point where the value of the dollar was excessively high compared with currencies such as the yen (far more distorted than it is now), the Fed, believing that inflation was imminent, raised interest rates. This strengthened the dollar even more, cut into exports, and really caused export earnings to drop. That is not the situation now, by a long shot. Instead, gains in productivity, low unemployment with comparatively low inflation, and an increase in gross domestic product from quarter to quarter give a picture of an economy where growth is still satisfactory. To create fears by warning of an economic slowdown sends a misleading message. If the GDP drops from 5 percent to 3 percent, that isn't too bad a scenario. I'd rather see the U.S. maintain 5 percent growth, but recessions don't occur until you get negatives. What happens to corporate profits if the economy slows down almost to zero growth? This appears to be what scares many portfolio managers. The impacts on corporate profits are not uniform. Corporations with huge debt service costs, such as AMZN could really be in trouble. Even profit making corporations such as WCOM can be in trouble. They depend on a rapidly expanding number of customers to meet debt obligations. In contrast, companies like SanDisk that have little or no debt are in a much better position to maintain or increase profits. The ability to generate huge positive cash flow means that (1) the company can buy up its own shares if expansion slows to a snail's pace, or (2) the company can consider paying dividends, or (3) the company can use its cash flow to acquire new assets, at relatively bargain prices. The key to continuing healthy corporate profits in a period when revenue growth is in question is low debt. SNDK and QCOM are both excellent examples. A second factor to consider is that certain kinds of consumer demands, such as for health services, energy, and food, remain relatively constant, regardless of the state of the economy. Yet often the panic selling is such that all stocks, with good or bad prospects, go down. One example is UNOCAL, whose latest quarterly profits rose five fold or more, on account of higher crude oil and natural gas prices. As soon as the earnings were announced, the stock went--you guessed it--DOWN, just like SanDisk! Time for my dinner--different food for thought. Art