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Technology Stocks : Long Term Investors' Outpost -- Ignore unavailable to you. Want to Upgrade?

To: EnricoPalazzo who wrote (122)	7/11/2002 11:54:20 AM
From: tekboy	Read Replies (1) \| Respond to of 562

here are some snippets... sorry about the lack of formatting, but I'm on the run... ltb/A@gottaheadoverthatcliffnearthefrontofthepack!.com <snip> What Makes An Overvalued Stock? Contradictory Valuations By our definition, from a fundamental, long-term view, an overvalued stock is one that has a contradiction between its fundamental performance and its valuation. For the most part, this usually means a stock priced as a growth stock that shows no growth. It could also mean a stock priced with an extremely high PE, but no sign of earnings expansion. Stocks with built in contradictions in their valuations have one of two futures, usually: explosive growth that justifies the overvaluation or stock price drops. All of the hundreds of stocks which suffered 90% or more price declines suffered the latter fate when growth actually went negative. If you were shorting these overvalued stocks at that time, the last year or more has been profitable. Are there any more left? The Stock Screen To find stocks with characteristics of contradictory valuations, we used the following stock screen: * Price/Sales ratios over 10 or Price/Earnings Over 40 * Revenue over $50 million * Not a biotech stock * Price over $5 * Operating Margin less than 0% (unprofitable business model) This turned up a list of 39 stocks that are overvalued with contradictory fundamentals and enough excessive market cap left in them to provide a possible short position. <snip> There are other ways to sort these stocks for contradictory valuations. For example, sorting those with the highest price/earnings ratio contrasted with the worst operating margins would produce the following list of contradictory valuations. Stock Company Market Cap Price/Earnings Earnings Growth, TTM Operating Margin NEM Newmont Mining Corp 9,153 6,727 NA -1.57 VECO Veeco Instruments, Inc. 686 3,378 -97.34 -0.63 NTAP Network Appliance, Inc. 3,870 1,923 -97.09 -0.13 EPC EPCOS AG (ADR) 2,034 973 -99.29 -1.58 AMAT Applied Materials, Inc. 31,257 904 -98.21 -1.92 <snip> All of these stocks have a contradictory valuation for one reason: investors think, despite the evidence, that major growth or earnings expansions is right around the corner. To short these stocks, you should research what this premise is and make a decision: is it speculative or real? For most of the stocks that would have been on this list a year ago, the growth prospects were speculative and did not appear. If growth prospects for the current stocks on this list are also speculative and do not appear, the stock prices are likely to decline. <snip>