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

To: Jerome who wrote (46238)	5/4/2001 6:47:38 PM
From: Jacob Snyder	Respond to of 70976

re: the "mean" (to which I expect a reversion) for AMAT, CSCO, ORCL, INTC, and NVLS: I'm still trying to figure out the mean for CSCO. Probably above a PE of 25, and less than 50. But the E keeps going down. For AMAT, I expect it, over the upcoming 10 years, to be (80% of the time, with overshoots in both directions the rest of the time) between a P/S of 3 and 6. I feel comfortable taking a LT position at a P/S of 3 and below. And I feel comfortable selling at a P/S of 6, and forecasting that any valuation over that level is unsustainable. I think Cary's method, of setting buy and sell targets based on valuation levels, is a good one. Whether you use a multiple of peak earnings, or book, or sales, is not so important. Having those benchmarks is the important thing; it helps avoid the euphoria at tops and the despair at bottoms. And certainly, stocks can spend a long time above their average valuation. If an investor thought CSCO was overvalued at a PE of 50, and then it went to a PE over 100 and stayed there for a long time, was he wrong? No, he made the right decision to avoid it. You could buy CSCO on dips (big dips) in 1994, and 1997, and 1998, and again now. Waiting for those dips (and I mean the BIG dips) is the right strategy. Saying, "I refuse to buy CSCO over a PE of 50, or AMAT above a P/S of 4" is the right discipline. Investors who love a stock are always saying, "buy it now, or you'll miss the upturn". I've found, if I just wait, a stock will, sooner or later, be available at a reasonable valuation. And my definition of "reasonable" is lower than about 90% of the people who post on SI, on any given stock.