Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : JDS Uniphase (JDSU) -- Ignore unavailable to you. Want to Upgrade?

To: Jacob Snyder who wrote (20658)	6/26/2001 5:16:11 PM
From: OWN STOCK	Read Replies (1) \| Respond to of 24042

Jacob: You make the fundamental error a lot of people make in assuming stock has "true" value. Some people believe Gold has a fundamental value too. Money is only a method of exchange in trading transactions, period. Stock is a percentage ownership in a corporation. In fact, your stock (or your Gold) is worth EXACTLY whatever you can trade it for, nothing more and (hopefully) nothing less. If all heck breaks loose, it may not even be worth the surplus value of the tangible assets of the company....a lot of other people get to have at that before the common stock holders. Stocks really only have RELATIVE values, and not absolute ones. Now it is true that some things appear to be more stable than others in their valuation...but IMO stocks are not in that category. Gold maybe, but even it is not absolute. Neither may I say are accounting rules, that's why they call them GENERALLY ACCEPTED accounting practices...they are not universal rules, like the law of gravity, etc...and they change over time at the whim of politicians. Now there's a class of people to put your trust into, but I digress... Your assertion that the hypothetical companies management lost $9B of your money may or may not be valid. First, we make the assumption that the transaction was for stock in the "buying" company. Then it is not money (see above) it is a share in the "buying" companies ownership. Dilution of your ownership is an issue, but cash (loss or gain) is a secondary issue...and therein lies the valuation question. Clearly, if management thought it was a stupid move, they would not have done it, and if the market thought it was a stupid move, JDSUs stock value would have dropped at that time. But it went up big time. Today's value of JDSU? Whose fault is that? Management or yours or the markets? Who made the decision, you or management or the market? Which market (stock or telecom equipment)? In terms of valuing the investment, the percentage of the companies stock that went into the investment is at least as important as the "future" market value. As to the value of earnings, per GAAP, I would assert they are almost meaningless, and perhaps even negative indicators. High GAAP earnings certainly get Uncle Sam and his taxman into the picture. Everything a company needs to grow and run is deducted above the bottom line...if it growing fast, there should be very little cash left "un-invested" in the future...low (or even negative) earnings. So your question: "If a company can't make money when everyone is throwing money at the sector, when can they?" clearly begs the real question... People threw money at JDSU because it was growing, and if JDSU had "made money" (by not spending it on new plant, equipment, R&D, acquisitions, etc) they would have missed the opportunity to grow, or have diluted value the stock by growing strictly on (new) equity... So valuation based on discounted (future) cash flow is the issue, as you imply, but never clearly state. And the discount rate is opportunity based, thus not an absolute either. And that is precisely what PRO-FORMA tries to capture; why it is used and is useful. JDSU has done a very remarkable job in growing their total cash flow over the last few years. They have managed to capture a large share of the total cash flow in their sector of the economy. It is probably true that the growth in the telecom sector will slack for some time...but the long term compound growth rate for the telecom sector is higher than any other I am aware of... That slack has more to do with getting rid of the CLECs and the last mile problem than anything else...the CLECs are almost a dead issue...and the last mile problem is going away very fast... And that, IMO, is precisely why you should invest in JDSU at this time...we are in a down cycle, and there will be another growth spurt on top of the 100% YOY rate... As always, buy low, sell high... -Own PS: OT: Price controls? Why do you buy and sell stock? You clearly do not believe in capitalism...why do you try to participate in it? My advise is you better get into more conservative investments, your "beliefs" are going to hurt you monetarily...

To: Jacob Snyder who wrote (20658)	6/29/2001 3:26:37 PM
From: KMcKlendin	Read Replies (1) \| Respond to of 24042

Hi Jacob-- Sorry it took me a while to respond; I've just moved to Salt Lake City and I'm intermittently without internet access. I understand your concerns about overpaying for aquisitions. In fact, the huge writeoffs of goodwill almost stopped me from buying JDSU. Here is my simplistic rationale: 1. JDSU overpayed for aquistions in the sense that any earnings derived from them did not justify the dilution. Subsequently, the stock price has plunged. Shareholders have therefore already payed a significant price for the aquisitions as the market has valued them significantly lower. A new investor in JDSU is buying stock aquisitions at the current level of the companies stock, and much lower than previous investors have paid. 2. The write off of goodwill is not a true loss in the sense that the company actually has a negative cash flow. For example, assume I have a company that generates a dollar per share of earnings. I then aquire another company that earns nothing, and is worth nothing. I use my stock to pay a value equal to that of my original company. My stock price should be now half as much--twice as much stock and the same amount of earnings. It may now be that my reported earnings are losses from the writeoff of good will. However, my company should be valued by its real (proforma) earnings which are now fifty cents a share. Who has paid the price for the aquisition? The original shareholders at the higher value. I would argue that this situation is analogous to JDSU's. 3. The writeoff of goodwill decreases the taxes on the true cash flow actually generating money for JDSU. So I'm still hoping that my original analysis has some value. I admit that I know less than I would like about finance and balance sheet analysis, and would appreciate any education. --Keith