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Strategies & Market Trends : Zeev's Turnips - No Politics -- Ignore unavailable to you. Want to Upgrade?

To: Zeev Hed who wrote (32282)	2/22/2002 12:34:08 PM
From: orkrious	Respond to of 99280

Intel Corporation (INTC / Nasdaq) Lehman Bros We believe Pentium 4 backlog is being cancelled, and that February was a terrible month. Maintain Market Perform rating, based on valuation

To: Zeev Hed who wrote (32282)	2/22/2002 12:46:30 PM
From: carolm	Read Replies (1) \| Respond to of 99280

Zeev, I received this from ChangeWave recently. Have you heard of this bill? I think the mood in congress is "off with their heads" right now. If it gains support, might it change the turnips forcast for the year? (sorry if the formatting is difficult) Carol Last Wednesday (2/13), one of the most potentially powerful and destructive ChangeQuakes lofted a warning shot across the bow of tech stocks. When Senators McCain and Levin, among others, introduced a bill to force companies to either recognize the cost of stock options on the income statement or to give up option-related tax deductions, you could hear tech company CEOs gulping throughout the land. That this bill, which was excoriated eight years ago, now has political capital is perhaps the best indicator (other than Wall Street firms reversing casual dress) that the pendulum-like wave of accounting conservatism and sobriety is beginning to build into a potentially LETHAL ChangeWave. How can this bill, which has the potential to exact a 20%-30% haircut in equity valuation on companies with large option exposure, have legs? Especially during a recession? It's the backlash of Enron, Global Crossing and the terrible smugness of many technology companies during the boom, baby. And payback is a you-know-what. I have news for you, there is NO political capital in voting against this bill--10% of the citizens own 90% of stocks in America. Democrats are lining up to support the bill and for the Republicans to get the Senate back and keep the House, it will take very nimble moves that the GOP has not shown in years. My worry is this changing of the rules could have the same effect on tech that the 1986 Tax Act had on the commercial real estate business. To refresh your memory, when the Tax Act of 1986 removed most of the tax savings from owning commercial real estate, it caused a 20%-25% reduction in the value of trillions of dollars in commercial real estate with the stroke of a pen. Stripped of that economic value, commercial real estate values plummeted--which was the REAL reason the savings and loan crisis soon followed. (Forget the Milken Junk Bond story--it was a minor player.) How big an impact could this have on tech? Take Microsoft, for example. Counting options as an expense for its fiscal year ended June 2001 would have trimmed its reported earnings from $7.3 billion, or $1.32 a share, to $5.1 billion, or 91 cents a share, according to Bill Alpert in Barron's. Sans options expense, Applied Materials would have only earned $291 million in 2001--which brings it to a 163 P/E on a trailing basis. Get the picture? Well, it gets worse. When you combine the specter of options accounting reform with the swing to the market looking for GAAP accounting vs. pro-forma accounting (as in "everything but the bad stuff"), the picture gets worse. According to a new study by John May at SmartStockInvestor.com, if you go back and revisit the profits of the five largest Nasdaq 100 companies (Intel, Cisco, Oracle, Dell and Microsoft) for the first three quarters of 2001, they reported $13.4 billion of pro-forma earnings to stockholders. To the SEC, they reported just $4.4 billion of GAAP profits. This means more than two-thirds of the headline pro forma profits resulted from net POSITIVE adjustments made to GAAP earnings. And GAAP accounting ALLOWS for not expensing stock option costs! If combined, the impact on tech earnings power of a reversion to strict GAAP for figuring P/E--and added back option expense costs--means Cisco's P/E GOING FORWARD 12 months is at 340! And The Nasdaq 100 forward P/E is incalculable. Any wonder why I'm a little verklempt about the new market risks that are weighing on the valuation of legacy tech stocks? Granted, the bills are not law. But opposed to the climate in 1994 when this bill was last shot down, the world is a vastly different place. Already the Institutional Investor Association is behind the bill--they fought big against it last time. The International Accounting Standards Board is now considering the bill, where they fought it before. Until these two enormous issues are killed off or neutralized, I can't come up with a good reason why ANYONE would want to own big-cap tech stocks. Just when the market needed a break, we get the real potential for a rule change that would launch a HUGE revision of tech company valuations. (Not to mention add 10%-20% higher employee compensation costs to the highest-paid workers in the world.)

To: Zeev Hed who wrote (32282)	2/22/2002 12:57:04 PM
From: waverider	Read Replies (1) \| Respond to of 99280

Zeev, been looking into NEWP and wondering if you could provide a few more details about why it is so attractive to you (at a lower price of course). They seem to have a bundle of cash, little debt, etc. I'm just wondering where you see the future growth as opposed to other companies in their space. Optical fiber has the kiss of death on it these days and it may take some time before any of these outfits recover. Thanks, wr

To: Zeev Hed who wrote (32282)	2/22/2002 1:12:31 PM
From: ild	Read Replies (1) \| Respond to of 99280

<<<I don't think Earlie was buying CA. I have never seen him buy anything, he feel comfortable only on the dark side>>> Zeev, sorry, this is not true. Earlie is pure fundamentalist. He was buying techs in early 1990 for 1-2 book/sales, with P/E in 10-15 AND when those biz grew revenues 20-30% a year. He sold when they reached "fair" values. So did Fred Hickey. They started shorting too early because they didn't expect/recognize the mania and got hurt. Both of them want to be bullish, but not with current valuations.