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.

Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Uncle Frank who wrote (36137)	12/7/2000 3:43:58 PM
From: Bruce Brown	Read Replies (1) \| Respond to of 54805

There's not a stock in the GKI that couldn't revisit its 52 week low in rapid fashion if market conditions continue to weaken. Hey, Intel saw it yesterday. It's PEG is now below 1. Microsoft is not too far behind in terms of a 52 week low. This is due to the current state of the PC industry. BB

To: Uncle Frank who wrote (36137)	12/7/2000 4:46:30 PM
From: Mike Buckley	Read Replies (2) \| Respond to of 54805

Frank, To be honest, the only way I'd be able to recognize that a compelling valuation had existed is in retrospect. Rear-view mirrors are indeed invaluable when appreciating value. :) I do think, though, that there are in the very least some infrequent situations in which valuations can make a compelling case for a Gorilla or King. Just a week ago I mentioned that Siebel at $60 was probably the first time in a long while that it had become "fairly valued." When Qualcomm was about $60 recently, I made a case that, for me, any price at $50 or below was in the beginning of a range I called a value play. Even if the prices of those two stocks had plummeted to 50% of those values, that doesn't mean that they weren't fairly or undervalued at the time. The lower price would only mean (assuming no deteriorating fundamentals) that the stock became an even better value. To use Qualcomm as one of the more extreme examples of how valuation can come into play, consider a post I wrote on Sept. 6, 1999, titled "PEGing Qualcomm." At that time the stock was at a split-adjusted price of about $41. (Tekboy, I wrote "about!" :) Its PEG using consensus estimates was 2.0. While that certainly wasn't an extraordinary value, finding such a strong Gorilla with such massive opportunities with a PEG of 2.0 is not easy; that alone made it a compelling valuation. That write-up also made a case for using estimates higher than the consensus estimates, rendering a PEG of 1.65. Remember that I think a PEG of 1.5 for a Gorilla is a fair value. The price range of the stock and the performance of the company in the last couple of months seems to have at least somewhat validated the PEG run more than a year ago. (For complete context, see Message 11169056 ) The PEG of 1.65 used a split-adjusted EPS estimate for 2001 of $1.25. At the time, I wrote that this was at the high end of a plausible range. Consensus estimates for that year are now $1.27. We as a community got lucky arriving at that estimate. But the point is that using a range of PEGs can give us an idea about the value of a stock, including a Gorilla. Let's step back even farther in time to the one post I've written in this thread that might overcome Citrix's impact on my reputation :), my initial write-up of Qualcomm. In that missive I explained that Qualcomm's PSR was 3.0 and that its estimated growth was only 10% greater than its PE, implicitly implying a PEG of 1.1. Seeing a Gorilla with such a low PSR and PEG made the case for me that the stock was, indeed, undervalued. Considering that the stock was $17 at the time, my rear-view mirror tells me that valuation can indeed be a valuable Gorilla Gamer's tool. (For complete context see Message 8698546 ) Have I convinced you yet? :) --Mike Buckley

To: Uncle Frank who wrote (36137)	12/7/2000 5:19:35 PM
From: Pirah Naman	Read Replies (1) \| Respond to of 54805

I don't see a compelling valuation in any of the 10 components of the GKI at this time. Frank, I don't track all of them. Of those I do track, a couple look to me to be good values based upon my estimates of their intrinsic value. Compelling values - I don't know, I think when I see a compelling value it usually means my estimates of free cash flow growth are optimistic. :-) There's not a stock in the GKI that couldn't revisit its 52 week low in rapid fashion if market conditions continue to weaken. But of course. Price is quite often disconnected from value. Over the long haul the two will converge; not that mature companies are priced in line with their value, but that the price will fluctuate about the value line and cross it repeatedly. This is why I think price predictions are of secondary or even tertiary value. The GG, and DCF analyses, are ways of guessing at business performance. When we start trying to predict prices, we are requiring of ourselves that we predict both business performance AND investor reactions to that business performance. Getting the former right is hard enough; it's even harder to predict investor reaction. (Exception: if I buy something it will invariably go down in the short run.) - Pirah

To: Uncle Frank who wrote (36137)	12/7/2000 5:38:29 PM
From: slacker711	Respond to of 54805

There's not a stock in the GKI that couldn't revisit its 52 week low in rapid fashion if market conditions continue to weaken. I hope noone thinks that I am looking for a method that will insure that stocks I buy will not continue to fall. Any stock....even one that is selling at a reasonable (or compelling) valuation may drop another 50%. When I speak of valuation, I generally think of it as a range. Hmmm....I think I could add more but I think Mike Buckley explained my position much more eloquently (and citing examples!) than I ever could. Slacker