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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (17155)	6/5/2003 10:57:42 AM
From: Jurgis Bekepuris	Respond to of 78748

Paul, PFE. I have difficulty using ROE above 25% for any company as an expected "long term ROE". It just seems that almost everything above 25% or even 20% eventually crashes through the bottom. Using 25% ROE PFE is not a bargain with predicted annual return of 6.5%. Even with 30% ROE it would earn only ~12% (I buy at expected 15% return). Compare that to BMY which at current price and expected 20% ROE shows 9% expected return. Yes, I know that PFE is much better company, but how much better? A related (?) story: I bought RTRSY at $17 and sold at $13 (now it's at $18 again). RTRSY had a ROE of 40-100% until the ROE crashed to 4.1% in 2001 and to losses last year. At the same time equity dropped from $1800M to $800M and expected return now even with 20% ROE (which is not guaranteed at all) is ~9%. Is it worth buying? Remember Mike Burry had a solid case of buying it in the 40's, 30's and all the way down. I know he's smart and uses stops, so he probably was not caught with a losing position. What I am trying to say is that these high ROE falling angels may be very dangerous if optimistic assumptions are used. I wonder if we are not still too optimistic about pharmas including PFE and BMY. OTOH, I may have been too pessimistic about RTRSY. I don't know. Other opinions would be appreciated. Jurgis - holding BMY, contemplating losing trade on RTRSY and whether it is worthwhile to reenter RTRSY at any point in the future.