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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: X Y Zebra who wrote (4628)	9/20/2001 2:34:38 PM
From: John Pitera	Read Replies (2) \| Respond to of 33421

that true value is found when corporations continuously make money and the price of their shares are low compared to historical ratios? A company does not need to make money continously too be cheap, they don't have to make money at all, in fact, If a company goes to enough of a discount it can be purchased and broken up for the underlying asset value. But the underlying assets have to be there. During the a complete business cycle, most companies will have reduced revenues, earnings, and lower profit margins during the "winter" season. In fact, many companies lose money, and sometimes quite a bit. An important aspect of whether companies, and assets are a good value, depends upon the quantities of Money in the economic system, as well as the holders of the Liquidity (Money) have to have the desire to spend it on companies, and assets that they believe will earn a higher rate of return. That's one issue that several have mentioned recently, that the banks can have more money to lend and at lower rates, but it does not help, the debt laden businesses that are excluded from borrowing it. Value much like beauty can sometimes be in the eye of the beholder. If a company is selling at 80% of book value, it may not look like a good value if there are 10 of them to choose from, and one believes that it's moving in the direction of being worth only half of book value. And if 10 companies are for sale, it means that there is too much supply for what ever they are producing. Half of the companies may have to be scrapped before the other half can be viable, ongoing businesses. If businesses and people stop spending and curb consumption, then the economy and values of assets contract. There is clearly a psychological aspect to human behavior and the business cycle. Individuals, Companies and Governments make bets, assumptions, and forecasts everyday as to which version of the future will unfold. But History is a good guide or at least the best one we have, and you raise the excellent point that we can compare companies and there share prices to historical ratios. Would it make sense to say that true value is found when corporations continuously make money and the price of their shares are low compared to historical ratios? that's why some wall street analysts look to the past and have found that the semiconductor sector, which has historically been cyclical in nature, often bottoms in price when the stocks sell for about 1 times sales. technicians note that using Dorsey Wright's point and figure percentage bullish readings for the Semiconductor sector, bottoms occur when the percent of bullish stocks declines all the way down to only 4 to 8%. (8% is where we currently are, so there is some evidence that we're getting close to an inflection point) Using Historical Ratio's we've seen at the end of the last two large bear markets of the past 40 years, Dec 1974 and Aug of 1982, that when the S & P 500 sells for 80% of book value, prices have gotten cheap and it's a good time to buy for a secular bull market. But that does not mean that lots of money were not made buying the market in May of 1970, so long as one sold the following year or so. John

To: X Y Zebra who wrote (4628)	9/20/2001 10:59:12 PM
From: John Pitera	Read Replies (1) \| Respond to of 33421

Zebra, you were asking for Names...ITWO is a company I follow and I concur with Briefing's analysis. I also feel the same about CMRC. these stocks are so out of favor that CMRC is selling for about 1 times sales currently, and revenues and earnings should expand. ----------------- i2 Technologies (ITWO) 3.77 -0.63: Finally reaching the point where investors are selling tech stocks simply because they are tech. This is a bullish sign from a long-term investing perspective, as it indicates that supply will soon begin drying up. In approaching the search for oversold, 12-24 month growth opportunities we focus on companies with 1) sufficient cash to last the downturn, 2) a legitimate business, 3) a truly attractive valuation... i2 flashes on our radar screen as a name that meets each of these criteria. Cash: As of June 30, company sitting on $819 mln in cash. Loss this year projected at approx. $128 mln or $0.31 per share. No question that burn rate is significant. However, relative to total cash, the size of ITWO's business, and current economic environment, it is not alarming. More important is when the company's financials will climb out of the red. Current estimates indicate that ITWO should return to positive cash flow on a quarterly basis by the 2nd-half of 2002... The Biz: i2 develops supply chain software solutions that allow companies to exchange scheduling and forecast information, enabling both suppliers and customers to maintain tighter inventory controls. For 2000 company held share of approx. 10% in a market expected to expand to $2.2 bln by 2004... Valuation: Trailing twelve month revenues of $1.3 bln translate to a price/sales ratio of 1.2x. Not long ago anything south of 7x sales was considered a bargain in this space. But even in rationale times, a multiple approaching 1.0x is deemed compelling, particularly in the software sector, which tends to benefit from robust margins... Rationale: Understand, we are not beginning to dig through broken technology stocks out of sense of nostalgia. Our opinion is that following an 18 month period of underperformance, alluring valuations will slowly bring investors back to the group, and will set up tech to be a top performer over the next 24 months. While downside risk remains, feel that quality names will be capable of triple-digit advances from current levels over the next two years. -- Damon Southward, Briefing.com