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

To: Proud_Infidel who wrote (40276)	12/1/2000 4:56:34 PM
From: Jacob Snyder	Read Replies (1) \| Respond to of 70976

New 52-week low today. Took out the November low, which in turn had taken out the October low. The only good thing that can be said about the chart, is that new bad news isn't causing gap-downs to new lows, just a drift to slightly lower lows. Faint praise. Your question is: if you have two companies, both growing EPS at a rate of 30%/Year (5-year averages, past and expected future), but one company grows 30% (exactly) every year, and the other company has huge year-to-year variability, then how much higher a PE does the predictable company deserve? If you intend on holding the stock for >5 years, then you should be willing to pay the same PE for the same growth rate (=equal PEGs). Therefore, you'd do best to buy the less predictable stock (when it is out of favor), because you can buy that stock cheaper (=at a lower PE, paying less per $ of future earnings). But most investors (especially institutional investors) don't hold that long. Mutual funds (especially tech funds) often have yearly turnovers of >100%. Most investors in AMAT are trying to time the cycle. Yes, there is a lot of the stock held by people like Lester. But, since his stock is not bought or sold, it is effectively not part of the float, and doesn't affect the supply/demand for the stock among investors. It's the momentum guessers, day-traders, and cycle-traders who decide AMAT's stock price (on a time frame of less than 3-5 years). This is unfortunate, but true. So, moaning that investors shouldn't give AMAT a lower PE than CSCO, is wasted effort. The fact is, they do, and always will. But I decided to put my money into AMAT, not CSCO or EMC, yesterday. At a P/S of 4, I think the downside is less than the upside.