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

To: FJB who wrote (45627)	4/19/2001 10:57:58 PM
From: brunn	Read Replies (3) \| Respond to of 70976

It seems we are anticipating a turn in fundamentals further into the future with each cycle. Both in 1996 and 1998, there were significant fake-out rallies as the bottom was anticipated prematurely. Ultimately, however, the stock price did manage to reach a final bottom at the same time that orders bottomed. Gottfried's graphs would show this. Since orders are probably at the earliest bottoming over the next month or two, the current rally--if real--will prove to be much quicker and coming off a higher valuation than previous bottoms--this in the face of the biggest tech bear market of all time! To mirror bottom valuations of 1996 and 1998, the stock probably should be trading 75-50% lower than it is today. I guess it is trading at 60 instead of the 20's because people remember how it rose 500%in 1996 to 1997 and 900% in 1998 to 2000. Although it feels good for us longs, we must remember that it will be harder to see those huge >500% gains when the stock price is coming from a higher valuation. Just as the market remembers how it quickly their business can rebound, once it does rebound it will begin to remember how their business can stop on a dime. One could imagine the day when the stock bottoms when business peaks and visa versa. It would be reasonable to attempt a valuation based on peak earnings of the next cycle--since Morgan has already projected $20 Billion in Sales by 2005, a reasonable valuation for a peak might be approximately $120 Billion (a price/sales of 6 would be between bubble-mania P/S of 10 and previous peaks of around 4). Its market cap currently is at 50 Billion. As you can see, with each day the stock market is pricing in more and more expectations--not only a turnaround but peak business conditions that may be years away. Why at this rate, it is possible that most of the gains for the next cycle will be made within the next week. This is the favorable scenario. The pessimistic scenario would be that this is a maket driven head-fake due to the NASDAQ having been grossly oversold. If we find out this summer that business has not turned around yet, today's buyer could end up punished.