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Strategies & Market Trends : Stock Attack -- A Complete Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Lee Lichterman III who wrote (35392)	11/11/2000 4:46:55 PM
From: j g cordes	Respond to of 42787

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To: Lee Lichterman III who wrote (35392)	11/11/2000 4:50:31 PM
From: j g cordes	Read Replies (2) \| Respond to of 42787

Lee, "fair value" is a vacuous term in this instance, it has little value when trading to make money with growth stocks. Indeed the term is usually applied to arbitrage of futures contracts. Its only a temporary supply/demand calculation that attempts to balance the current index level, index dividends, days to expiration and interest rates with spot prices in the belief they flucuate around a norm.. and are therefore tradeable. If you actually mean historically fair value in the sense of an average price to growth rate over time, then compared to what? CSCO's historical value compared to itself, or CSCO compared to the SP500, or the DOW? Had one ignored CSCO's high pe's and fair market values from Jan 96 to the present, even with the current downturn, one's money would have grown ten fold. CSCO may have been and continue to be a "bloated pig" but that pig sure can fly! PE's also don't correlate well to profitable trading with growth stocks. The problem lies in assuming that because statistical norms are evident, one can pick non-norming stocks and they'll comply with the average. You say CSCO and DELL have a peg of 2+ ".. which means that their prices would have to drop 50% for them just to reach historically fair value." So you really believe we'll see DELL at 12.5 and CSCO at 25 before they reverse? Don't think so, unless we have a complete collapse of the need for communications. Growth stocks don't pay out a dividend, investors hope to make their capital gains on the stock price. This creates different parameters of value appreciation. It may be wrong, it may be lunatic to think these companies have any value if all they do is grow at 20 - 50% per year without expanding profits. They anticipate too much and run too far in every direction because fair values don't easily fit. We could well see a bias change at the next Fed meeting or the one after that. Certainly the combined uncertainty of politics, seasonality, oil, maturing of some sectors and financial worries (as you note in the telco's) has pushed things down. But as soon as sellers refuse to let go, buyers are waiting and the perception is that growth (whatever those stocks are at that moment) look very cheap. Some new sector always catches the imagination of cheap gold and easy riches.. that's just the way it is.