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

To: Seeker of Truth who wrote (44753)	7/21/2001 6:15:44 AM
From: Seeker of Truth	Read Replies (3) \| Respond to of 54805

Suppose you are one of those traders who try to buy cyclical stocks at the bottom. Profits are in the red as they are historically, but the price/book value or some other metric looks right to you and you buy even though you expect some more bad news. You think the bad news is already priced into the stock. What's the E here or the P/E? This kind of reasoning about PE/G is not applicable in such a situation. Instead I suppose such traders estimate the peak earnings of the next cycle, when those earnings will be reached, what the P/E will be at that point and whether the bet looks profitable. That kind of trading is certainly not my game but you can see that cyclicality upsets the PEG concept. There IS an argument for buying SEBL at this point though I certainly will not do so. 1. The big money is made by buying gorillas, though not overpaying wildly. 2. SEBL is a gorilla. 3. SEBL will recover fast growth because its market is way undersaturated. 4. Suppose SEBL makes $2 a share in 2006. At 50 times earnings that would be a price of 100, a tripling from here. Not too bad! That assumes a growth rate of 30%, markedly slower than in the past 5 years. It also assumes a P/E that's markedly less than we've seen in the last three years. Why don't I accept this argument? Deep down it's because like all of us I've been bruised so badly that I want an exceptionally conservative metric. That must apply to most of the other possible buyers out there. Right now the market is more concerned with preserving capital than with making big gains. This will change some time, but not tomorrow.