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Strategies & Market Trends : Dave Gore's Trades That Make Sense -- Ignore unavailable to you. Want to Upgrade?

To: Dave Gore who wrote (103)	12/21/2001 12:45:25 PM
From: Jane4IceCream	Read Replies (1) \| Respond to of 16631

Dave....agreed. I have TQNT still from 11 as I think it looks like great support. I now have CRUS....agree there. Had ATYT from 8's through mid 13's... Just entered ATML at 6.53 for swing trade. ATML is diverse but cant understand why SSTI and SNDK appear strong in flash memory sector while ATML tanks and IS a good company. Jane

To: Dave Gore who wrote (103)	12/21/2001 12:48:33 PM
From: Dave Gore	Respond to of 16631

P/Es in the House: 15 Stocks Facing Great Expectations The below chart is a little hard to read but it is at the heart of what this thread is all about (or NOT all about if you own some of the below stocks). Most of them may NEVER have a PE of 30 or below (or at least not anytime soon). The notable exceptions, however, and the TWO really important things missing from this guy's analysis is P.E.G. and historical profitability. SEBL, for instance, is a great example of a high growth stock that many feel is already looking much better, so it is not nearly as overvalued as some right now. Also, I give way more credence to stocks like TXN which have been very profitable in the past as compared to the companies on the list who never have. Nevertheless the guy makes a good point and he should have pointed out that there are much more overvalued stocks than the examples he used. By Justin Lahart Associate Editor 12/21/2001 07:19 AM EST A couple of weeks back Stanley Nabi, a value-oriented investor who's managing director at Credit Suisse Asset Management, got on the phone and started calling analysts who were bullish on Cisco (CSCO:Nasdaq - news - commentary - research - analysis). He wanted them to say when they thought the big networker, which had lately found new love among investors, would earn 75 cents a share over a year. He wanted to know this because Cisco was getting up near $22, and for it to have a price-to-earnings ratio of 30 -- a reasonable multiple for a company that has grown rapidly in the past and promises to do the same again -- it would need to earn something like 75 cents. But he didn't get anyone willing to put it on the line. The best he got was a vague sense that 75 cents might happen sometime in the fiscal year ending 2004. Or maybe 2005. "Why should I pay 30 times uncertain earnings years from now?" asks Nabi. Interesting question. Cisco's stock has pulled back sharply since Nabi made his call (backing and filling, no doubt), and at Thursday's close of $18.29 it would need to earn a mere 61 cents to justify a forward P/E of 30. Unfortunately, over the next year analysts expect it to earn just 26 cents, according to Thomson Financial/First Call. For the fiscal year ending July 2003 (the furthest out First Call's numbers go), Cisco is expected to earn 39 cents a share. Of the 28 analysts who have put in fiscal '03 estimates on the company, the most bullish sees it earning 55 cents a share. Now heaven knows this doesn't mean that Cisco's price is necessarily "expensive" or "rich" or "silly," as some people might say. It just means the company needs to blow the estimates out of the water and grow like the dickens to make you feel like it's worth it here. Or maybe there's some better metric besides price-to-earnings to figure out the appropriate value for this particular stock. In any case, we thought it might be worthwhile to take a look at what other tech companies might be trading well above 30 times fiscal 2003 earnings projections. We looked only at companies in the benchmark S&P 500 (which is to say companies that we indirectly own, because like most red-blooded Americans we've got some of our money in index funds), and we set a number of (somewhat subjective) criteria. To begin with, the company needed to be trading well above 30 times fiscal 2003 earnings estimates. To cull the list some more, we then looked at the highest analyst estimate for '03: If it was in howitzer range of what the company needed to have a P/E of 30, out it went. (Nor did we care where that highest estimate came from. It could be from a grand old Wall Street firm; it could be from Haight Ashbury Securities.) Next, we kicked companies off the list that whose fiscal 2003 ended before June 2003. This kind of broke our hearts, because it meant dropping companies like Network Appliance, which would need to earn 71 cents a share to get a P/E of 30, and which is expected to earn 20 cents a share in the fiscal year ending April 2003. Toughest job a manager has to do. Anyway, here's the list. We included forward estimates for the next year since its worth pointing out that some of these companies are expected to show losses before they see gains. Pass the Lithium Stocks trading at substantial premiums, going by earnings estimates Company Current-Year Estimate Fiscal '03 Consensus Earnings Needed for P/E of 30 Altera (ALTR:Nasdaq) $0.20 $0.43 $0.66 Broadcom (BRCM:Nasdaq) -0.29 0.27 1.23 Ciena (CIEN:Nasdaq)* -0.28 0.15 0.47 Conexant Systems (CNXT:Nasdaq) -1.37 -0.29 0.43 Cisco Systems (CSCO:Nasdaq)* 0.26 0.39 0.61 JDS Uniphase (JDSU:Nasdaq)* -0.03 0.06 0.27 Mercury Interactive (MERQ:Nasdaq) 0.54 0.88 1.08 PMC-Sierra (PMCS:Nasdaq) -0.37 0.25 0.61 Peoplesoft (PSFT:Nasdaq) 0.66 0.94 1.33 Siebel Systems (SEBL:Nasdaq) 0.41 0.62 0.94 Teradyne (TER:Nasdaq) -1.36 0.34 0.94 Texas Instruments (TXN:NYSE) -0.12 0.62 0.88 Veritas Software (VRTS:Nasdaq) 0.58 0.77 1.39 Vitesse Semiconducter (VTSS:Nasdaq)* -0.40 -0.20 0.37 Yahoo! (YHOO:Nasdaq) 0.05 0.15 0.54 *Company reports on fiscal year. Sources: Thomson Financial/First Call, Baseline. Remember, there is absolutely no judgment here. Nobody is saying that these companies couldn't beat even the most bullish estimates. Nobody is saying these companies are too expensive. Heck, nobody even says that earnings have to be part of your valuation framework.