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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: globestocks who wrote (63337)	11/29/2000 1:47:52 PM
From: KymarFye	Read Replies (2) \| Respond to of 99985

I'm not saying that that we've reached the turning point already, or even that recent selling is in some objective sense "overdone," but, unless the game changes in some world-historical way, when the next bull market comes around, the best or at least most glamorous companies will, as ever, be granted valuations far above average. The most highly favored companies will always have above-average PE's: It's tautological. That's what makes an average an average. Furthermore, and to add something truly unfashionable on this thread at this time, under the right circumstances (worldwide buildout within next-generation I'net environment), many of those "unbelievable" projections for growth in "routers, servers, hardware or software" may still turn out to be conservative.

To: globestocks who wrote (63337)	11/29/2000 1:52:37 PM
From: Rob S.	Read Replies (1) \| Respond to of 99985

There is nothing wrong with "paying up" for good stocks that have long growth tracts ahead of them. But it is nuts to pay 200-400 P/Es based on earnings projections. In the fiber-telecom sector we have seen repeated examples of companies winning and then losing market share in key product sectors as they and then their competition introduce new generations of servers, routers, etc. Here is where the business economics theory and case studies should be considered. Some of the basic things to consider are 1] Total available market potential, 2] Ease of competitive business entry, and 3] stage of the business/product life cycle. A basic assumption of the fiber=telecom industry is that it is based on communications and interface standards. Despite some differences, products are designed to work with those from other suppliers. Competition is diverse and new products and competitors are entering the field at a rapid pace. This means that the field has relatively low barriers to entry. Marketing and systems integration and support capabilities will certainly be a factor of specific performance, but as we have already seen during just the past few months, market share among the players in this industry can quickly change. And even though rapid growth continues to be expected for years to come, the astronomical rate of growth of the past couple of years is expected to decline. Put together, declining growth rates plus intensifying competition will eventually lead to something this industry has yet to experience - competitive price pressure and lower margins and bottom line results. That is typical when you get into the "maturation" phase of the business life cycle. A couple months ago I saw a report that showed the projected growth of the industry. Of course it was in the billions of dollars. Sales are expected to continue to increase rapidly for another couple of years but are then expected to level off and latter decline. Much of the decline will be attributed to reduced prices. When you sum up the valuations of the current publicly traded companies in that sector you come to the conclusion that even the present level of capitalization is unrealistic.