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

To: Jacob Snyder who wrote (43003)	3/4/2001 2:10:22 AM
From: John Trader	Read Replies (3) \| Respond to of 70976

Jacob and all, here is some interesting food for thought. First of all, at times like these, there is sort of a window of opportunity to either buy into or switch into companies that offer attractive valuation. AMAT is one of these companies, I think most would agree. But with the incredible price changes lately, there seem to be some other attractive valuations. I like to use the PEG ratio, using forward PE, and the 5 year estimated growth rate to get a feel for value in stocks. Using Yahoo Research numbers, this comes out to PEG = 1.06 for AMAT (45.25/1.7/25). For the S&P 500 they report a 5 year estimate growth rate of 14.1%, a Dec 01 PE of 21.6, which gives PEG = 1.53. So per this, the S&P 500 is about 50% overvalued compared to AMAT, and this calculation uses 2001 earnings estimates to compute the PE for AMAT, which is probably conservative given the slowdown that is most concentrated in technology. I also computed the average (trailing) PE of the Dow stocks a few days ago, and it came out to 24.4. The average PEG for the Dow stocks using the trailing PE comes out to somewhere around 1.75 (guesstimate for that one, did not run all the numbers). This fits roughly with the S&P 500 data. So, AMAT is cheap relative to these groups of non-Nasdaq stocks (hear that "Mr. Market"?). Considerably so in fact, per this analysis. Now, consider this. The recent crash in prices has brought down some other stocks considerably. Many of these are inherently much more risky than AMAT, but some of these valuations seem compelling. For example, Power One (PWER) PEG = .49 and was about 5 times higher at its high, Sandisk (SNDK) PEG = .53 and was about 8 times higher at its high, Corning (GLW) PEG = .72 and was about 5 times higher at its high, JDS Uniphase (JDSU) PEG = .79 and was about 6 times higher at its high, Broadcom (BRCM) PEG = .73 and was about 6 times higher at its high, Triquent Semiconductor (TQNT) PEG = .53 and was about 4 times higher at its high. Am I missing something here, or are some of the above stocks screaming buys now? I don't expect a return to the highs in the next couple of years, but there still might be considerable gains. The amount that these stocks are off their highs seems to to blow away the efficient market theory (either was very inefficient before or now or both). Of course the telcom inventory thing has to play out (will affect all of the above except SNDK), but one could argue that this is reflected in the 2001 earnings estimates that were used to compute the PE for the PEG calculations (i.e. assume or hope the estimates don't come down more). Also some of these stocks were considered to be high quality stocks, as reported in magazines, and in web articles (e.g. BRCM and JDSU picked in Feb. Smart Money Magazine, BRCM picked by Red Herring last year as one of the stocks for the next millenium), also George Gilder has spoken favorably of JDSU, BRCM, and PWER (I admit though his track record is not looking so hot anymore). I am not making any stock recommendations here, I am just an amateur at this, and of course one should research all the other aspects of the above companies and check all my numbers. But the point is, are there some great buys out there right now if we drift a bit from our semi-eqpt space? Regarding the communications chip stocks and fiber optic stocks, some (e.g. Cramer) think they will be going a lot lower as the telcom inventory thing plays out. But Kevin Landis of Firsthand Funds thinks they are good buys here (i.e. he mentioned AMCC and PMCS in a recent interview). The idea of waiting until the telcom thing plays out more could be a good one, but often the best stock buys are available before an upturn in the cycle can be perceived. Any thoughts on any of the above, or any other good buys that might be available here? John