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Technology Stocks : Semi Equipment Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Sarmad Y. Hermiz who wrote (11468)	9/5/2003 10:38:00 AM
From: C_Johnson	Respond to of 95617

Hello Sarmaz, The NSM and INTC news is certainly good for the sector. Like you, I hope we continue to hear good outlooks from others. Believe it or not, I really do not find the better outlooks all that surprising. The bigger question is - sustainability. As far as the amount of "headroom", it is hard to say how much more the market will push these stocks up. This week I have been on several strategy calls and several firms are basing further tech rallies on 36x multiples tied to '04 estimates (which is a number that happens to be based on the average multiples attained during '92-'96 timeframe) and possibly 44x '05 numbers. These multiples pertain to a broad swath of the tech sector - not just semiconductors and capital equipment. The expectations assume everything follows a positive script - rising economic growth, good end demand on both the consumer and corporate fronts, no exogenous events, etc, etc. That's what Wall Street seems to be looking at. So, to answer your question directly, yes, there is some headroom - especially if you put faith in the analysis I just described. You are not mis-reading the table. The numbers are better next year vs. this year. This just goes to show you that everyone has a different way of looking at data. For my purposes, I was focused on the shifts in earnings expectations vs. the action in the stocks. I was trying to point out was that estimates for this year and next year have been trending down - at the very least they have been trending down during the first half of this year. Clearly the rally is being propelled by next year's (higher but lowered <g>) numbers and not this year's (greatly lowered) numbers. When I look at the table I get the sense that Wall Street was too optimistic about the early part of this year and even though it started to become clear in May/June that next year would be better, estimates for both periods were still coming down. As you are probably aware, even some of the non-Wall Street industry forecasters have pushed out a really strong recovery until '05. To toss a bit more gas on the fire, it bothers me greatly that several analysts have been shouting victory as they publish tallies of who beats estimates and who doesn't. The problem here is that they do not factor in the overall direction of earnings estimates, pre-annoucements and other factors throughout the quarter. In my humble opinion beating a stream of lowered expectations doesn't call for a popping of the cork. Hope that clarifies my thinking. Regards, Carl