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

To: Gottfried who wrote (42047)	2/11/2001 6:34:20 PM
From: Donald Wennerstrom	Read Replies (1) \| Respond to of 70976

Gottfried, That's true, the big bubble last spring (AMAT 115.00) was "irrational exuberance", but what right "value" do we assign to that number? We can look at it and make some estimates in several ways. Cycle 1 - High 14.97(1995) Low 5.44(1996) Percent Change -64 percent Cycle 2 - High 27.09(1997) Low 10.78(1998) Percent Change -60 percent Cycle 3 - High 115.00(2000) Low(so far) 34.13(2000) Percent Change -70 percent 1. Let's say Cycle 3 was like Cycle 2(60 percent down), and lets assume then 34.13 was the bottom. Then the high instead of 115 would have been 85. Using the same approach, and assuming Cycle 3 was like Cycle 1(64 percent down), then the high instead of 115 would have been 95. 2. Now let's go the other way see what percent decrease we need to get to your price of 27.5 starting at 115. That would be a loss of 76 percent. Assuming the starting price should have been 95 instead of 115, the loss to get to 27.5 is 71 percent and starting at 85, the loss is 68 percent. Now what does all this mean? - probably nothing at all really, except that whether the low turns out to be 34.13 or 27.5, we are really much closer to the bottom than the top. The time to sell was in the 110 to 115 area and the time to buy is probably now for another 3 to 4 bagger in the next year or so.<gg> Don

To: Gottfried who wrote (42047)	2/11/2001 10:16:15 PM
From: brunn	Respond to of 70976

27.5 is the value I come to when I predict AMAT's bottom price relative to peak earnings in this cycle versus AMAT's bottom price relative to peak earnings in 1997: 10.78/30 cents=.36 (30 cents being peak quarterly earnings with the last cycle) .36 * 77 cents=27.72 (77 cents being peak quarterly earnings with his cycle) The advantage of this technique to calculate a bottom is that it removes all of the speculation that drove AMAT to the 115 high last year. It also works out well technically, as levels in the high 20's would fall on the same line drawn back to the previous bottoms on semi-log graph. The disadvantage of this technique is the obvious question of whether the market should value AMAT during this bottom as it did at the last bottom. For example, AMAT never fell in 1998 to the level it fell in 1996 and if you waited for this price in 1998 (5.44/25 * 30=6.5) you would have missed out on the 10 fold run. Will AMAT once again outperform its historic valuation like it did in 1998--"AMAT comes out of the downturn stronger"--or will it fall all the way back to 1996 valuations, in which case we could see the teens? I favor the optimistic scenario that its valuation will continue to discount improved business outperformance. This scenario means the bottom has been achieved or we are nearly there. I am admittedly biased however. One final concern is whether it is AMAT's competitors turn to realize improved valuations. AMAT has definitely been outperformed by certain smaller rivals--NVLS, KLAC, LRCX for example--recently. Arguably this trend could continue. Interestingly, the same phenomenon has been seen in the overall market: small and midcap outperforming large cap. The fact that AMAT's valuation improved in 1998 vs. 1996 might have been less related to AMAT's business strength than to the overall outperformance of large cap U.S. stocks. Obviously, those days are over.