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Technology Stocks : WDC/Sandisk Corporation -- Ignore unavailable to you. Want to Upgrade?

To: Wallace Rivers who wrote (21238)	11/28/2001 8:39:49 PM
From: Art Bechhoefer	Read Replies (1) \| Respond to of 60323

The key question is, where are investors putting their money? Obviously not in SanDisk or other semiconductor stocks. And not very much in the airlines, either, since all of them are carrying excessive amounts of debt. Southwest seems to be better off than many of the old stalwarts, like American, United, Delta, etc., but none of them are really in very good financial shape. The present stock prices for those companies already appear to have factored in the good news--lower fuel costs and transfer of some security costs to the federal government--and indirectly to air travellers in the form of a surcharge added to the passengers' tickets. If you look at mutual fund flows, which is one of the most publicly available data sources, a great deal of money has gone out of equities and into bonds or money market funds. And at the same time, some very large new bond issues have been floated by the likes of AT&T, GM, Nortel Networks, etc. The effects from new bond issues and from transferring invested funds from equities into bonds is confirmed by what looks like depressed stock prices--until you factor in expected earnings growth, which in many companies is so poor that they are still selling at price-earnings ratios that look too high for the coming year at least. The thing to do is to compare the expected return on a bond with that from a financially sound growth stock such as SanDisk over the next couple of years. The bondholder can expect little, if any help from lower interest rates. They're about as low now as they're going to get, especially if we start running large federal and state budget deficits, or if states and local governments are forced to borrow more (very likely). So if you are a bondholder and managed to buy some corporate bonds of moderate risk before the Fed started lowering interest rates, you've got a pretty good investment, but it may not go anywhere during the next year or two. That is, you might expect a return of about 6 - 9 percent for a moderately safe bond purchased at least six months ago. Now compare that with the uncertainties, but also the possibilities of a return from a growth stock, particularly in the technology sector, where almost all stocks have taken a bath. Eliminate, first of all, the companies whose debt levels are so large that any possibility of a return is almost cancelled out by the possibility of bankruptcy, or at least a prolonged period where every spare penny of cash flow goes toward paying interest on the debt. This is where SanDisk, despite the sagging demand, begins to look pretty good--in terms of return on investment at current market prices. Looking at a two-year time span, the return is likely to be at an annual rate above 10 to 15 percent, and that is a very conservative projection. The choice between bonds and growth stocks begins to look easier now that interest rates have probably hit bottom, pushing bond prices to premium levels, while tech stocks remain stagnant. Art