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

To: substancep who wrote (42365)	5/3/2001 10:16:48 AM
From: Mike Buckley	Read Replies (1) \| Respond to of 54805

P, Isn't the 4.95 SEBL PEG for the next 7 quarters misleading if ERM revenues are not factored into the equation? Yes and no. The analysts are surely building their expectations about ERM into their models. Since they don't have much to go on right now, they're going to be loathe to build very much into the revenue streams until they see more data about product adoption. Remember that ERM is probably still in the pre-chasm stage. What it comes down to is that a PEG will always prove to be misleading if at some point in the future the assumptions that are built into it are proved to be bad assumptions, either on the low side or the high side. The big reason PEGs tend to undervalue an emerging or strong Gorilla is because the earnings picture tends to improve long after the period of time the PEG addresses. (Notice the operative qualifier, "tend." I didn't write "always.") --Mike Buckley

To: substancep who wrote (42365)	5/3/2001 10:24:48 AM
From: straight life	Read Replies (1) \| Respond to of 54805

Isn't the 4.95 SEBL PEG for the next 7 quarters also misleading if the poor business conditions of the past 6 months reverse? Isn't that the problem with modeling the future by assuming that present conditions will continue unchanged? ps- wrote the above while you were writing your excellent response to substancep which answered my question. pps-- "Goldman's Sherlund Says Software Will Recover First By Eric Gillin Staff Reporter 5/3/01 10:05 AM ET Goldman Sachs' Rick Sherlund is casting his lot with the software industry. In a note to investors this morning, the analyst said this sector would recover first among the downtrodden of the tech world. He sets software companies apart from hardware firms that can have a harder time working down excess inventories and feel a greater whallop when their customers slash technology budgets. "Software is not subject to the need to work down channel inventory levels and is sold more for current consumption, so business could potentially come back more quickly than in other sectors," he wrote, explaining the industry can sidestep twin terrors of low demand and high inventory. Sherlund is optimistic because he thinks information technology budgets will get stronger as companies begin to believe the economy is not on the highway to recession. Indeed, last week's report of the gross domestic product showed the economy grew more quickly in the first quarter than many expected. He recommended nine software stocks, all of which are on Goldman's U.S. recommended for purchase list: Amdocs (DOX:NYSE - news), BEA Systems (BEAS:Nasdaq - news), Check Point Software (CHKP:Nasdaq - news), Internet Security Systems (ISSX:Nasdaq - news), Mercury Interactive (MERQ:Nasdaq - news), Microsoft (MSFT:Nasdaq - news), PeopleSoft (PSFT:Nasdaq - news) Siebel Systems (SEBL:Nasdaq - news) and Veritas (VRTS:Nasdaq - news). Investors have already started to turn bullish on the sector and recently sent these names much higher -- along with tech and the broader market. In the past five weeks, Microsoft jumped 28%, while Seibel climbed 58%. The recent rally helped erase heavy losses that hit the sector in February and early March. Microsoft -- recently up 0.1% to $69.80 -- has a price to earnings ratio of 39.9. Its 52-week high is $82.87 and its low is $40.25. Siebel trades at 95.2 times earnings. It was recently off 2.8% to $46.58, well off its 52-week high of $119.87, but far off its $22.95 low. "With stocks already up sharply off their bottoms, investors are understandably apprehensive about these higher valuations without supporting evidence of any improvement in fundamentals," Sherlund said. "If anecdotal evidence begins to build that IT budgets are indeed being spent this could be an encouraging benefit to investor sentiment." According to information provided by the analyst, software stock valuations are about where they were before stocks soared in the three years through last spring. And although a lot of the stocks Sherlund recommended trade at more than two times their expected growth rate for 2001, he thinks evidence of improving IT spending could drive prices even higher. If history is any indication, the summer is a slow period for software spending, something Sherlund says could dampen investor confidence in a near-term recovery. But once software can pull through the summer and early fall months, he expects to see a light at the end of the year. "The seasonally slow September quarter is, however, followed by the seasonally strong December quarter. And the fourth quarter could also benefit from budgets that were not spent in the first quarter," he wrote. Sherlund's advice to investors -- wait until June. "The earnings preannouncement period upcoming in June may provide some pull back in tech stocks for those investors who may wish to build positions but fear having already missed the boat," he wrote. thestreet.com ppps- I think it may be that -experience is not the best school, though fools will learn in no other- (paraphrasing Ben Franklin)