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Non-Tech : QQQ - Nasdaq 100 Trust -- Ignore unavailable to you. Want to Upgrade?

To: Doug who wrote (477)	1/6/2001 6:55:41 PM
From: Rocket Scientist	Respond to of 840

<<Do you have any convincing arguments for the NAZ to be at these high P/E levels & higher.>> As a composite, or basket of stocks, the Naz P/E is obviously a reflection of the market's valuation of the constituent stocks. Since QQQ includes a lot of money losing stocks, and a lot of others which command a high P/E, rightly or wrongly, the composite's P/E is high, too. It's interesting to consider whether the QQQ earnings can grow fast enough to justify its P/E. Many investors believe a PEG ratio of 1 to represent fair value, and few would buy a money losing stock without some expectation of it reaching break even within a reasonably short time period. So: if we suppose that all the QQQ stocks with positive EPS grow earnings at rate equivalent to their P/E (i.e. a P/E of 30 equals 30% y/y earnings growth), and that all the money losing stocks cut their losses by 50%, the QQQ earnings per 10K$ unit investment will grow from 57$ to 204$, or 258%! Suppose the EPS+ stocks grow at only 75% of their P/E, and the money losers cut their losses by only 33%, the resulting earnings in twelve months will still be 162$ or 183% higher than today. So, I don't believe the QQQ is necessarily over priced because of its current P/E. It really depends on how efficient the market is in evaluating the growth prospects of the various constituent stocks.