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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: DWB who wrote (111710)	1/28/2002 2:41:16 PM
From: Wyätt Gwyön	Respond to of 152472

IMHO, I don't think your assumptions for 10 year growth take into account the possibility of QCOM earnings expansion into areas that are currently not part of their revenue stream, but that will shortly (1-2 years) be major contributors. i don't say what the 10-yr CAGR will be; i just say what it would need to be for me to justify the current price, at a given discount rate, according to my calculations. since QCOM's widely anticipated "explosive" earnings have not yet happened, the best anyone can do is guess, or consider a range of guesses, and consider them over an extended period of time (like 10 years); that is just what i do. what i find is that, IMHO, for a firm starting with normalized earnings of some three-quarters of a billion dollars, QCOM would probably have to have the best forward 10-year earnings CAGR among the S&P500 (and perhaps in the history of the S&P500), in order for me to be fairly convinced that by buying the stock at the current price, i could expect a return which simply equals the SPX annualized return since 1926. of course, if i were to run a similar DCF on CSCO, for example, i wouldn't be surprised if they would need the best earnings on not just the planet, but the entire universe -g-, in order for me to feel comfortable about my expected return. such is to say that i do not think QCOM is the only overvalued stock out there, not by a long shot. in fact, the SPX itself would probably have to have its best 10-year CAGR in its history in order to achieve the 11% return everybody thinks is their birthright (because some financial planner tole dem so). (of course, the other possibility is that stocks have reached a "permanently high plateau" (which for some peculiar reason confers a PE of 50 on S&P tech stocks, and a PE of 17 on the rest), in which case i do not need to worry about missing the 11% party, because it is just a 5% party that i can get out of Treasurys anyway.) there are two main variables--the expected return, and the earnings CAGR (with the SPX there is also the dividend yield and its growth rate). if i cannot know the earnings CAGR in advance, at least i can posit what forward return i would find attractive, and then deduce the earnings CAGR QCOM would need to realize (according to my calculations) in order for the expected return to become real. there are a range of possibilities out there. i know a lot of people expect QCOM to double or triple earnings in the next year or two (e.g., i believe slacker wrote a post [on the G&K thread, i think] not long ago saying a 40 forward PE could put the stock at 110 or so at the end of 2002/2003). this may happen, for all i know. after all, when there were many fewer CDMA subscribers than now, investors saw fit to bid the stock price up to 200 a couple years ago; why not again? i won't say it can't happen. but i will say that relying on this or that forward PE is basically speculative returns (as contrasted to fundamental returns, as per Bogle's definitions). the kind of calculation i am trying to do is to figure out what kind of return i could expect if i bought the stock at price X in year 0, and then sold the stock in, e.g., year 30. what would my return be, on a percentage basis, from price X in year 0? whatever walt piecyk says in 1999 or whatever the "forward PE" is in 2003, won't matter if i hold till 2032. what will matter is the economic performance of the company in the intervening 30 years; AND the starting price at which i bought the stock.