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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: stockman_scott who wrote (51395)	5/13/2002 10:31:32 PM
From: Mannie	Respond to of 65232

Hey Scott, here is another take on those CSCO numbers, from John Mauldin: Cisco Cooks the Books Again Cisco told us this week that they will make $.20 per share pro forma earnings, if you ignore all those inconvenient losses. If you choose to look at the real number, it is closer to $.10, and that is before the end of the year write-offs from over-priced purchases of other companies. Want an interesting exercise? Go to www.bloomberg.com. Get a quote on Cisco. At this moment the consensus estimated forward earnings are projected to be $.35 with a Price to Earnings (P/E) ratio of 59. But if you go to Bigcharts.com and retrieve the same information, you find they suggest earnings at $.15 with a P/E of 102. If you look at the 2001 year fiscal year-end for Cisco, you find losses of over $1 billion dollars. Who is right? Looking at the actual quarterly tax filings, Bigchart.com apparently uses past or trailing actual earnings. Bloomberg uses projected pro forma earnings, and of course don't refer to those inconvenient write-offs that will happen later this year, which will possibly once again have the company showing a loss. This is the company which said this week, "Sales are flat, we are not sure when we will see some real growth, but we fired a lot of people and cut costs so we made more money than you guys projected." Well, maybe Chief Cheerleader John Chambers actually put a little better spin on it than I did. This sparked a 300 point Dow rally, two-thirds of which has been lost as I write. Let's get some perspective. At the end of the last recession, Intel was selling for 1.5 times sales with solid growth potential. Today it is selling for 7 times sales with no growth in sales since 1998! Microsoft, with powerhouse growth, was selling for a P/E of 24 in 1991. Today it is at 31 with flat sales. These are great companies, well-managed and with great franchises which will be with us for decades. I love Microsoft. I am so much more productive because of that company than I was 20 years ago it is hard to describe. I would kiss Bill Gates, except that we don't do such things in Texas, at least in public. But. Trees don't grow to the sky. Microsoft and Intel simply cannot grow at 15% per year, which is what their current prices say the market believes. 15% a year says they will double in size in less than 5 years. It won't happen. It has taken 25 years for Microsoft to grow to $25 billion in sales. Where is there another $25 billion they can find in the next five years? The answer is, there is no such growth in the wings. Will they grow? Will they be more profitable? Yes. But they will not double. Yet investors hope for a continuation of the past. And consultants look at these companies, and thousands of others, and make projections which have no hope of coming true in a Muddle Through Decade. These projections are a house of cards built on false assumptions.