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

To: gdichaz who wrote (39316)	2/15/2001 6:54:49 PM
From: Bruce Brown	Respond to of 54805

Bruce: Your observations on non tech stock prices relative to their ongoing growth is very useful for comparison purposes. Well, there is more to it than a face value P/E comparison such as Geoff mentioned and I followed up with in my comments. Each of those P/E's would require backing out the charges and arriving at the 'true' P/E. In addition, there are considerations for dividends, EPS growth projections, revenue growth rates, taxation on corporate profits rates, etc... . So, I found it odd that Geoff simply mentioned P/E and PSR when it's difficult at best to compare two companies on an apples to apples basis from the technology and non technology sector when looking only at P/E and PSR. We have different growth rates for technology companies based on where they are in their TALC. Hard to find an exact match from technology to go up in a head to head comparison with Krispy Kreme, Harley Davidson, Pfizer, Southwest Airlines, Home Depot and Wal-Mart. Would it be Juniper, Ciena, Checkpoint, Qualcomm, EMC and Microsoft? What is it I am supposed to compare between the P/E and PSR of the tech companies and the non tech companies to determine fair valuation and say 'gorilla game buying is now a no brainer'? Having watched market commentary and market behavior for many years, it is my observation that the "street" is heavily weighted with people who believe that recommending a large company with a long track record is somehow safer and more prudent than considering its relative future compared to a dynamic younger company, especially in a "risky" area such as technology. Hence prices are skewed by the "advice" given by old line money managers and also their holdings in the funds they manage. Well, you can see where the danger comes in pounding the table on a large company like Nortel that still sells a lot of legacy gear in comparison to a younger, dynamic company like Ciena that is actually enjoying the benefits of customers have to use scrutiny as to where their budget dollars are targeted in a difficult environment such as we are currently in. On the other hand, the old line one money managers are not off base when they turn to some defensive issues in times of uncertainty. They are not just blowing hot air. So the drug stocks become a favorite because illness and medication know no economic timing issues. Energy stocks have been 'hot' because of supply and demand of natural resources and the earnings/dividends back the valuations. Or I mentioned Harley because they pre-sell their growth out far enough into the future to almost the perception that the earnings, revenue and dividend stream will be there in spite of economic conditions. At least to the point they can most likely avoid a blow up like a Nortel announcing a quarter will be -.04 cents instead of +.16 cents. If you remember back in the past decade in economic cycles, we eventually reach a point where so many companies are warning and comoing in with numbers below estimates that instead of seeing their stocks heading south on the news, they start to head north because forward guidance starts to forecast improving conditions. We've been rotating through the phase of the cycle over the past two or three quarters where the reports were fine and dandy for many, but the forward guidance has been 'foggy'. During that kind of an environment we may see wonderful earnings growth, revenue growth and dividend growth where applicable - and the share prices go down, and down, and down, and down, etc... . It always 'seems' like an opposite 'cause and effect', but that's how it works. BB