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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: RetiredNow who wrote (53230)	5/20/2001 4:28:20 PM
From: Stock Farmer	Respond to of 77399

Hi Mindmeld: 100 B by 2010 Three test questions. First, do you think that there will be a few multi-trillion dollar market cap companies out there? I guess the answer to this is yes... but it is scary. Second, where does 320B$ worth of revenue come from in 2009, 2010 and 2011 and how does this compare to total expenditures today or forecast in that period? It is fully 1/3 of the total revenue expected to be extracted by all cell phones between now an 2010 for example. It appears unreasonably large. It may be possible, but you should ask "is this compatible with displacement of existing macroeconomic spending patterns given GDP growth for the next 10 years?" Or are we comfortable assuming that CSCO will be as pervasive in 2010 as GE was last year? This is the subject of the other thread of debate, as you dredge up markets and I attempt to size them. Do we need to be complete? How many do you think that will be as big as wireless internet? Five? Ten? Twenty? Third, let us think for a second about valuation methodologies in Stoic 2010 versus Bubblicious 2001. It is a mistake to assume 10 years of PE ratios 2x higher than the norm. Why not compare to other 10-year-after-crash PE periods instead of PE's half way through the crash? I suggest even a PE of 20 is generous for a maturing cyclical company with insignificant dividend as the bulk of the investing population swings its mind and cash flows towards "income" stocks. I am not a fan of PEG, but why would you ascribe a PEG greater than 1 to CSCO, ever? Particularly when in 2010 in order for it to grow by even 20% it will have to eat a company the size of Cisco every year. These don't appear to be growing on trees. My methodology is to value conservatively and be pleased with any upside error. The alternative is to be pleased with downside error. These approaches triangulate somewhat on a PE between 15 and 20. Let's say the PE would be somewhere between 15 and 20. I used 20 for the high side. But 35? In 2010? Possibly a bit much.

To: RetiredNow who wrote (53230)	5/20/2001 6:13:49 PM
From: Stock Farmer	Respond to of 77399

Mindmeld - I think we're on to something here. Assuming a PE of 20 in 2010 for a company growing at 20% p.a. and which may or may not be something that aged and retiring boomers invest in (I think they may be focussed on life extending biotech, but that's a different argument) A) 67 B$/year = $20 in a mattress B) 113 B$/year = $20 in T-bills C) 233 B$/year = $20 in a great investment I went looking for what these revenue levels implied. Here's a link to the US GDP bea.doc.gov Deep inside you find the line "Information processing equipment and software..." and the total 700.6 (B$) This is the total value of all products produced in the US by everyone. If CSCO maintains its current production share of 3% then we must see the total market bloom to A 2200 (14% GDP growth/y) B 3700 (20% GDP growth/y) C 7800 (30% GDP growth/y) Alternately (more likely) if CSCO grows by displacement (e.g. VOIP products displace TDM voice products), and GDP grows 4% per year, then CSCO must have production share as follows: A 6.7% B 13% C 23% This latter scenario is more likely than rampant GDP growth, but what it says is that CSCO needs to take up more than 1/10 of the sector of the GDP in which it competes. The bright lights might say "acquisition". But if we price that success into the shares we purchase today, we are effectively discounting the value of the target companies to zero. Which is a fallacy. This needs more thinking.