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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Jan Crawley who wrote (60564)	2/15/2002 12:18:18 AM
From: Jacob Snyder	Read Replies (3) \| Respond to of 70976

That's an interesting and difficult question. If investors reacted the same way to the same conditions, and to the same degree, then stock prices would be a lot more predictable. But they don't. So, how are investors acting differently, in this downcycle, compared to the last two? 1. First, it's an apples-to-oranges comparison. In this downturn, we have a recession. This time, we have bookings that are staying at trough levels for a prolonged time (at about the same level as the 1996 and 1998 downcycles). In 1998, we had an "exogenous shock", a macro problem, in E.Asia and Russia. But this time, the "shock" was worse and a lot closer to home. 2. P/S trough: 1996 0.9 1998 2.2 10/01 2.6 Assuming we've seen the trough of this downcycle, there is a clear pattern of investors giving a steadily higher valuation to AMAT. Is this because AMAT is worth more? Hard to make that case. Trough earnings (err, GAAP=reality losses) haven't gone up. Trough bookings haven't gone up. AMAT is a bit more dominant in it's sector, has invaded a few more niches. But nothing, IMO, that justifies a trough valuation nearly 3 times as high now, as in 1996. I think trough valuations over 2, are evidence of a Bubble, which has only partially deflated. I'm "going with the flow", but I'd expect the next cycle trough (2004 or 2005) to be back down to a P/S in the more normal 1-2 range. 3. And I don't see any further valuation expansion possible (measured by P/S), from now till the cycle peak (2003 or 2004). Any increase in stock price will have to come from sales increase, not from a further valuation expansion, because we have already hit an unsustainable valuation level. (see my previous recent posts on this). 4. traders are acting like they always do, causing volatility, swinging incredibly rapidly from pessimism to optimism. Which offers opportunity for those who are capable of going contrarian at the extremes. 5. IMO, a lot of people (both professional and retail) have very vivid, still-fresh memories, of how AMAT was a 10-bagger from the 10/98 low to 4/00. We won't get those returns this upcycle, because the Bubble is deflating, whereas then it was inflating. But investors, as always, make the mistake of overemphasizing the importance of recent history, and underemphasizing longer-term (and more reliable) trends. 6. No one ever learns anything. No matter how badly investors get punished, or how many times they get punished, they make the same mistakes every cycle. I guarantee you, at the next cycle top, this thread will be dominated by posters who are 110% sure that the industry is no longer cyclical, and a double-digit P/S is permanently sustainable. Hard to imagine that, now. But then, 10/01 was hard to imagine in 4/00.