Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Jacob Snyder who wrote (39979)	11/25/2000 9:11:26 PM
From: John Trader	Read Replies (2) \| Respond to of 70976

Jacob, Thanks very much for your thoughtful reply. It is interesting to try to understand some of the big moves in stocks like AMAT. A big part of the explanation is due to a change in fundamentals, but I think part is due to the action of stock-price momentum players and also to a change in the mass psychology of investors (i.e. change from greed to fear or fear to greed). I try to use the fear part to my advantage, but as you point out, it only makes sense to buy companies that are reasonably valued and have good fundamentals. Thanks also for your comment on what happened in the 70's to the Nifty Fifty. I agree that interest rates were a big factor, and I don't see that as a problem on the horizon now. One last comment. Have you heard about Harry Dent and his book The Roaring 2000's? In this book he makes the argument that the baby boomer demographics are a big factor for about the next 10 years in driving our economy and the stock market. Also he gives credit to the internet, which he compares to the assembly line in the Roaring 20's. He was on CNBC a couple of weeks ago, and FWIW, he thinks the Nasdaq may go down to around 2300 or so, but sees that as a huge buying opportunity. I don't know how he uses his theories to provide such short term market guidance, but I thought I would pass it on anyway. FWIW, here is a link to a Business Week article that talks about the prospects of a tech rebound, and also mentions AMAT: businessweek.com Regards, John

To: Jacob Snyder who wrote (39979)	11/25/2000 9:43:32 PM
From: Demosthenes	Read Replies (1) \| Respond to of 70976

Jacob, <<It's hard for me to believe that the stock went from 115 to 38 based on the Street misunderstanding what's happening in the industry. It's easier for me to believe that the Street knows what it's doing, and knows things I don't. A 30% decline can be just a head-fake, but we're way beyond that.>> On what historical basis do you support this? Was it easier to believe the Street knew what it was doing and knew things you didn't in September of 98? For me it was definitely easier to believe the Street, and betting against it was one of the most difficult decisions I've made. Disbelieving the Street has gotten me over 200% since then in AMAT at the current price. D

To: Jacob Snyder who wrote (39979)	11/25/2000 10:03:33 PM
From: brunn	Read Replies (1) \| Respond to of 70976

Jacob, I believe that AMAT may be one cyclical company for which P/E may be at least as reliable as P/S (I use both.) I agree that cyclical companies are more reliably valued by sales. This is because most cyclical companies--e.g.automotive companies--lose money during down years. P/E therefore becomes meaningless and P/S and P/B are the only remaining metrics. AMAT however (knock on wood) has not lost money over the last 10 years. Therefore, a meaningful P/E still could always be calculated--although I realize that the E will plummet more than the S due to fixed costs (which will inflate P/E relative to P/S). What is the disadvantage of using P/S? It ignores profit margins. AMAT currently is enjoying its best ever profit margin--about 22%. Prior to this cycle profit margins peaked around 15% in 1995-96. It is unrealistic to expect AMAT to fall to historic P/S levels if over time they have shown they can get more earnings out of their sales. True, the profit margin will fall dramatically with the next downturn, but by that time the market will begin predicting future earnings and profit margins and since AMAT's profit margin peaked 50% higher in 2000 than in 1996 it would be reasonable to predict even further margin improvement with the next cycle. In the end, earnings growht increase a company's value more than revenue growth. I agree that predicting future earnings is totally unreliable but coming up with a reasonable revenue projection is about as hard. I agree that creative accounting can affect earnings more than revenue but I feel this is more of a concern for less established companies.