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Strategies & Market Trends : Bosco & Crossy's stock picks,talk area -- Ignore unavailable to you. Want to Upgrade?

To: Vegas who wrote (4020)	9/21/2003 9:29:19 AM
From: Patentlawmeister	Read Replies (1) \| Respond to of 37387

Wow, Barrons is really bashing the bubble players this week. Look at this blip ("extreme bubble valuations"): SOMEBODY OUGHT TO TAKE a leaf from the NASD's book and send out a somewhat different warning to investors -- describing in simple, down-home language the dangers of buying on fantasy instead of fact. If you buy on margin and things go wrong, you at least get a margin call. When you buy on fantasy and things go wrong, all you're likely to end up with is commiseration. We've never seen a time when so many are so eager to buy on the come. And that includes the wild years from, say, '98 through early 2000. Then, after all, while fantasizing flamed, the economy was on a roll. Now, the drill is to pay no mind to what's happening or even what's visible; concentrate on the prospect of a big recovery in a company's fortunes next year or the year after, powered by a surge in the economy that itself is highly problematic. Nowhere is this gap between reality and fancy more evident than in the skyrocketing techs. So far, the heralded rebound in sales and earnings have failed to materialize; but, if anything, that merely seems to whet the speculative appetite, as though somehow today's lag in performance only enhances the promise of a payoff tomorrow. The semiconductor-equipment companies are a perfect case in point. The business is punk, not the world's biggest surprise in view of the woes afflicting the chip companies, which happen to be their customers. The semiconductor-equipment book-to-bill ratio for August remained tangibly below 1; it came in at 0.91 and was barely a hair better than July's reading of 0.90 -- but only because the July number was revised down from the 0.97 originally reported. Yet the stocks have been on fire during the big rally. Applied Materials, for one, has roughly doubled from its 12-month low, while KLA-Tencor has risen from 25 and change to close to 57. Ed Yardeni, Prudential's strategist but a smart fellow and a nice guy anyway, notes that orders and shipments are still in the tank. But "analysts are turning more bullish on earnings for the industry." Just as we've been saying. Ed also cites the industry trade group as reporting that the business has been stalled for months now, but it spotted indications of "more favorable conditions," although said trade group admitted those indications had yet to materialize in an upswing in sales and orders. But don't give up hope, one of these days.... The equipment makers, Ed reckons, are selling at three times the market multiple -- which, he feels, makes them not cheap. We think he's being much too gentle. The semiconductor-equipment makers are absurdly expensive. KLA-Tencor, for example, fetches something over 50 times the consensus estimate for the year ending June 2004. Applied Materials goes for nearly as much next year's hoped-for net. (We hate to see grown men cry, so we'll forgo mention of trailing 12-month P/Es.) By any reasonable or even only slightly irrational yardstick, these are extreme bubble valuations. Which, we suppose, is just what you'd expect to get when you combine buying on margin and buying on fantasy.