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Technology Stocks : Network Appliance -- Ignore unavailable to you. Want to Upgrade?

To: Jacob Snyder who wrote (9444)	11/6/2001 6:12:59 PM
From: Selectric II	Read Replies (1) \| Respond to of 10934

Hi, Re:The NTAP 04C15s I recently bought, with the stock between 6.09 and 9.7, cost (average) $2.84. At today's close, with the stock at 17.02, the lowest ask is $9.40 for those options. Just wondering -- did you sell 'em?

To: Jacob Snyder who wrote (9444)	11/7/2001 2:24:42 AM
From: techreports	Read Replies (2) \| Respond to of 10934

Jacob Snyder, don't get me wrong, I agree valuation matters. I don't like the idea of buying an overvalued stock and then have to rely on the stock market to continue to irrationally price the stock so I can make a profit (i.e. greater fool theory). I rather my stocks go up because I find value where the market doesn't, or the growth in profits from my companies push the stock higher. If the market decides to price my stocks at excessive valuations then that's great. If it wants to give my stocks a PEG over 1.5 then that's fine. I just don't want to depend on this excessiveness to make money. Would you agree that's a smart practice? Let's assume the recession is over by January 2004 (we need this assumption, to believe NTAP will earn $0.40 in CY03). Let's not assume a re-inflation of the Bubble, but just a return to normal (= pre-1999, perhaps pre-1995) valuation levels. The LT expected EPS growth rate is 30%/Y. What PE will NTAP have? Let's be generous, very generous, and say the stock gets a PE (using trailing earnings) of 50. Then, the stock price at expiration is: $0.40 X 50 = 20. Notice, I am making assumptions much more bullish than the current consensus. Well, if Network Appliance just hits the current estimate ($.20) and the growth rate is 30% (let's give NTAP a PEG of 1.5...the PE would be 45) that would generate a stock price of $9 I guess my question is, do you only buy stocks with PEG of 1 or under 1? Is 1.5 fine? I think you should rarely buy anything over 1, because the next year's profits would already be discounted. Plus, I rather buy a stock before the stock market decides to award it a generous multiple. Qualcomm just reported today, and they expect ESP to come in between $1.10 and $1.20 for fiscal 2002 i believe Let's say QCOM does $1.15 and grows ESP 30%. A P/E of 45 is pretty generous. 1.15 * 45 = 51.75 If the PE was double the growth rate (30% growth rate) the price would be 69. So buying today at $54.73 per share you'd need Qualcomm to receive a generous multiple to just provide a 20.6% return. Then again, if 02 ESP comes in at $1.22 and Qualcomm recieves a 50 PE that's 61. Considering the stock is today at $54.73, I wouldn't consider this a big upside potential. By in 2003, I think 33% ESP growth is possible (due to WCDMA and improving economies around the world). That would roughly be $1.53 in 2003 from $1.15 in 2002. A PE of 50 on $1.53 would give you a price of 76.5 (A 28.4% return) over two years? Not very impressive. Let's say ESP grows 35% in 2004 to 2.065 and the PE is still 50. That's a stock price of 103.25 If ESP grow 30% in 2005 to 2.685 and the PE is still 50 then we have a stock price of 134.25 Obviously, we have no idea what Qualcomm will really earn in 2002, so it's hard to determine where we should start (1.05? 1.10? 1.20?) Then how can we determine the growth rate? Will it be 35%? Will the market award Qualcomm a 50 PE when ESP only grow 30% in 2005? Are we headed into a deep recession like Warren Buffett thinks, so US economy may not recover till 2003 or 2004? Considering everything looked fine in 1999 (no one predicted the drop off in 1999) then maybe investing is an impossible exercise? hmm...Warren Buffett did say we were in a mania in 1999 and I believe he has been building a huge nest of cash (not sure if this was because he didn't like the prices he saw or BRK is just generating so much cash, he can't spend it all). You think he foresaw this and still isn't ready to buy?