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Strategies & Market Trends : Gorilla and King Portfolio candidates - Moderated -- Ignore unavailable to you. Want to Upgrade?

To: Mike Buckley who wrote (236)	11/1/2003 4:13:12 PM
From: Jim Mullens	Read Replies (1) \| Respond to of 2955

Uf/Mike, Re QCOM valuation Uf- 1. Re: your statements- “Even if that's true, it doesn't necessarily mean that qcom is undervalued. It may just be "less overvalued" than its peers. Qualcomm- Adjusted metrics- 10/30/03 (price $48.02) ...................EPS .............PE.............LT Growth.......PEG ..................Core Ops 2004............$1.60.........30.0............25.0..................1.20 In previous analysis, as posted on SI, the Value Line historical data base of the DJ Industrials going back over many year suggests that an average PEG is in the neighborhood of 1.8 to 2.2. A Smith Barney study of historical data suggest a PEG of 1.8 for a company with an earnings growth rate of 35% with long term interest rates at 5.5%. Using the above, Qualcomm with a long term growth rate of 25% would command a PE of between 45 and 55, and using $1.60 EPS a valuation of between $72 and $88. Reference from prior SI post >> “Value Line shows the DJIA companies for the last 10 years (ending 2000) with a average PE of 17.4 and earnings growth rate of 9.7% which yields a PEG of 1.8” For the past 20 years (PE 13.4, earnings growth 7.3%, PEG 1.83). For the past 50 years (PE 12.7, earnings growth 5.7%, PEG 2.2). I read a recent article in which a University was comparing their 2002 investment portfolio to the S&P500 and stated their PEG was less than the S&P500 which stood at 1.7 at the time. A Smith Barney study reflects a PEG of 1.8 for a company with an earnings growth rate of 35% with long term interest rates at 5.5% <<<< Uf. 2. Re: your statement- >“Simply put, what I'm looking for is a stock that's less valued than it's gonna be at the time I want to sell it. Unfortunately, it's not very simple to determine that. <<< Unfortunately not much in life is guaranteed, except death and probably taxes. Regarding “guaranteed”, Mike stated in an earlier post >> “If a medium-term bond such as the ten-year bond provides a guaranteed yield of about 4% as has been the case recently, >most people would want an earnings yield of at least 10% to compensate for the much greater risk of owning the stock. It's just my way of trying to put it into perspective. “ I submit that even the “guarantee” of a bond is questionable. A ten year bond yielding 4% (25 PE) when adjusted for inflation at a nominal rate of 2% over the next 10 years reduces the real yield to 2% (50 PE). During that 10 year period if one has to sell and rates have risen to just 5%, the “value” of that “guaranteed” bond has declined 20%. That poses another question, which today is the ”safer” investment , the 10 year bond or Qualcomm? Mike, where do I start?- Statements from your last post- 1. “ I understand that from having read all of your other posts here and on the Qualcomm moderated thread” 2. .” However, that information your post repeats doesn't answer my question: What is the fair value (or range of fair value) that you've determined? “ My follow up to #1 & 2- If your read all my prior posts, you should have been able to take it one step further knowing that I use a PEG of between 1.8 and 2.2 and figure that out on your own. 3. “It's not a problem for me that you might not want to answer that question. If so, simply say so. As an example, I've explained that I believe it's very difficult for me confidently to arrive at it. “ 4.” But please don't evade my question, unintentionally or otherwise. “ 5. “ Sorry that I forgot to address that the first time around” in reply to_. Again, can you put some numbers to your FCF/ Enterprise Value methodology for further analysis and comparison? 5. A. “ I believe I've already given sufficient information to digest.” 5.B. “ I believe anyone interested in more information about that should determine their own numbers” 5.C.” You mention that it would be helpful to compare my numbers yet I can't imagine what they might be compared to that would be helpful.” 5.D. “I'm open-minded so have at it if you believe you can change my mind. “ My follow-up- You say you’re open-minded, but from the content and tone of your posts I’m not so sure. Regarding “ But please don't evade my question, unintentionally or otherwise. ‘. Talk about being evasive- Please refer to this series of posts in which I believe I kindly requested you provide your umbers so as to better understand your original statement (below). “The enterprise value is the equivalent of about 30 years of trailing free cash flow. If free cash flow annually increases 50% for the next three years and the enterprise value remains unchanged, only then will the value be the equivalent of about 10 years of free cash flow.”<<. Which I interpreted as QCOM at its present value of $47.50/share would only be fairly valued if its FCF increased 50% per year over the next 3 years. In other words, only after three years with FCF increasing from $1.451B in 2003 to $4.9B in 2006 would QCOM be worth $47.50 per share. You continue to “evade” providing any FCF numbers based upon the above reasons including> “You mention that it would be helpful to compare my numbers yet I can't imagine what they might be compared to that would be helpful.” They are the basis for your premise that Qualcomm is greatly overvalued and one can not possibly confirm or refute that premise without the raw numbers. Perhaps, just perhaps, the numbers you are using are incorrect as was your Cash and Marketable Securities figures. Contrary opinions are welcomed, provided they are presented in a manner conducive to friendly debate. Let’s try to follow UF’s guidelines- jim