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Technology Stocks : Intel Corporation (INTC) -- Ignore unavailable to you. Want to Upgrade?

To: Jorj X Mckie who wrote (171678)	10/21/2002 1:56:22 PM
From: GVTucker	Read Replies (1) \| Respond to of 186894

Jorj, RE: Now that I own the whole company, I am relying on earnings alone to get a return on investment and not the ability to sell a piece of paper at a higher price. If you bought all of Intel, you still own an asset that under your (admittedly highly optimistic) scenario would be worth vastly more than the principal of the bond. And to ignore that point is to grossly misstate the tradeoff. That piece of paper that gives you ownership of all of Intel is just as relevant as the principal of the bond. In fact, if you use your optimistic numbers, I don't think that it would be unreasonable to expect the market value of Intel to 10x the terminal period earnings, or $233 billion. And even if you discount that value back to today at 10%, a very high rate, you still get a present value of $74 billion. It doesn't take too much cash flow added on top of that to get the total value of Intel today over $96 billion. The point of the exercise was to use the assumption of absurd growth to show that at the current market price, the stock is still overvalued. Intel might be overvalued here, that's still certainly subject to debate. But you haven't demonstrated that at all yet.

To: Jorj X Mckie who wrote (171678)	10/21/2002 2:04:28 PM
From: chomolungma	Read Replies (1) \| Respond to of 186894

I am relying on earnings alone to get a return on investment and not the ability to sell a piece of paper at a higher price. Yes, but why did you choose cycle low earnings? Why not choose 2000 (cycle top) earnings of $10 billion instead? Or why not choose cash flow if you're "buying" the whole business and just want to get a return on your money? Sure 25% is way too high of a normalized growth rate for Intel. It's undoubtedly no more than half of that once the economic conditions return earnings to a normal level. But your high growth rate, in an attempt to look conservative, becomes meaningless because you choose an absurdly low earnings level on which to base it . Now you may think that Intel's earnings this year are typical, but don't think that anyone else shares your vision of the future. I'll pick $8 billion as a normal earnings level and a "conservative" multiple of 25 since Intel will grow faster than the economy for the next 10 years. That gives a conservative value on the stock twice the current level. See how easy it is when you get to pick your own inputs?