re NTAP:
Having followed this company for about a year now, I've decided it's a good company in a good industry. It takes me that long to decide, and I won't be hurried. I would agree with you, that NTAP's cash flow 10 years from now, is going to dwarf that of today. That's why I'm looking for an entry price now. I'm 100% certain that storage is going to grow more rapidly than just about any other market. And I think NTAP is well positioned in that sector. The only caveat I have (and it's a big one) is, I'm not sure they will win the turf war with EMC as NAS and SAN converge. As I posted earlier, I see WAFL as a superior product (quality and pricing), but not a bte. This bears watching closely over the next several years.
But, right now, the most important thing for me to do, is try to get as good an entry price as I can. When NTAP is back to 150, I have 3 times my original money if I bought at 50. I seriously considered buying there, when NTAP bounced repeatedly at 50 for 3 months in late 2000-early 2001. But......I have 15 times my original money, if (notice that word: if) I buy at 10 later this year, after the last analyst has cut earnings estimates. Time doesn't correct the mistake of buying too high. My % return will always be far higher if I buy low now, no matter how high the stock goes eventually. Entry price makes an immense difference in an investor's returns. Picking the right company is only the first step. I also have to not overpay. Paying far to much for a good company's stock, is just as bad a decision as picking the wrong company. I know, the Good Book says the exact opposite, so maybe I'm not a Gorilla Investor.
Market analysis has clearly showed that investors only pay attention to events expected for 12 months out, max. Stock prices follow changes in 12M forward EPS estimates. Stock prices do not follow changes in LongTerm (usually 5-year forward average) expected EPS. If investors bought and sold stocks based on expected 5-year future average earnings, then we wouldn't have cyclical stocks. It gives a big advantage to you, if you can buy (and hold) based on the longterm picture. But it is only an advantage if you buy based on the longterm picture, when others are selling based on the shortterm (12M forward) picture. Buy a great company when everyone thinks they are a great company, and you could have dead money for 10 years.
So, it is critical to not let my longterm optimism blind me to current events. EMC has warned that sales growth will be lower than expected in 2001, and the earnings estimates have started to come down, for EMC. NTAP has not warned. NTAP's customer base is smaller companies, who (compared to EMC's customer base) have less cash and cash flow. A lot of expensive boxes, from NTAP and EMC and CSCO and JNPR, have been bought with borrowed money, in the last few years. The credit spigot (and equity financing too) has been abruptly shut down now, and NTAP is more exposed to this problem than EMC. That's why I think it's highly likely that the forward 12M EPS estimates for NTAP will be coming down. In a lot of companies, the IT people are saying, "we have to have this expensive box". In 2001, the CEO is saying, "we can't afford it". The CEO will win that argument.
The other problem I have, is how everyone is saying, "NTAP's boxes are more cost-effective than EMC's, so NTAP will gain market share". That's like saying, "Dell's PC is more cost-effective than Compaq's". If NTAP is going to win market share based on competing on price, then I want to avoid the entire sector.
Until the EPS estimates come down, and have been thoroughly discussed in articles in the business press, I don't think it's safe to buy NTAP. We've now given back all of 2000's gains, and (like a lot of the techs), we might give back all of 1999's gains as well. This is a realistic possibility, no matter how bright the longterm picture is. You can think of my efforts to buy low, as TimingTheMarket. I think of it as NotOverPaying. Even if I'm only partially successful (like I was with QCOM last year), it's worth the effort.
I'm responding on this thread, rather than the NTAP thread, as I find that thread useless.
JS@andipissedthemallofftoo.com |
