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

To: Jurgis Bekepuris who wrote (33164)	12/31/2008 12:47:04 PM
From: Spekulatius	Respond to of 78627

GOOG, ESRX - concern is that search pricing for key words may weaken which would not surprise given the economic malaise. We know already that online purchases are down YOY and the total sum of online purchases defines the total market, IMO (of course that is US only). Another wildcard is MS/Live cashback which is become more popular at least in my circle. FWIW, pharma benefit manager are having a bad day. They outperformed the market. I think it is s growth business and may become even more so. Companies providing health benefits are pushing this one hard to save costs. ESRX seems to have some year end selling yesterday and today.

To: Jurgis Bekepuris who wrote (33164)	12/31/2008 2:46:42 PM
From: Paul Senior	Read Replies (1) \| Respond to of 78627

GOOG. Well, I have my ways of looking at things. So far, I've been very wrong about GOOG (and lots of others). That's maybe partly because my methodology might be wrong. Or inapplicable: If people don't want stocks or aren't willing to pay what they previously were willing to pay because of fear or changing economic conditions, there's nothing that can be done for it. That said, I don't understand your analysis, what you mean by "return". "With 18% ROE the expected return is about 11% annual which is very low in this market and not a buy even in a bull market." I'm not understanding how 11% is derived from 18% roe. If GOOG has an 18% roe and book value is $87.29/sh., then the company should earn $15.70/sh. based on that book. 15.70/309. = 5%. "Even assuming 20% growth and 20PE the return is only about 28% going forward, which is again very low in this market." If I could assume a 20 p/e and if I assume analyst earnings estimate average of $21.50/sh. (Yahoo figure), then I get a stock price somewhere around $430 in 2009. That won't make my overall bet on GOOG profitable (I've bought at much higher prices than currently), but for any buys now at $309, that would still be a 121/309 = 39% gain within 12 months. If it could happen, for me, imo, that's not "too low in this market". I use several methods making value judgments, and not all of them are in agreement. Since I am generally looking for ways to include stocks, I don't always require that all methods be in agreement before I make a purchase. For GOOG, my focus is on profit margins. What am I willing to pay for a company with growing sales that has had net profit margins over 20% in each the past few years? Net profit margins that are higher than KO (but less consistent). I am willing to pay more for a company like GOOG that keeps about 1/4 of every revenue dollar to the bottom line than I am for companies that don't have sales growth and aren't able to have such good profit margins. How much more?-- I use a formula which relates the profit margins to stock price and other metrics which quantifies this for me. Aside from the macroeconomic and psychological issues of most every asset class being decimated in this year's market crash, the stock-specific issue raised by Spekulatius would be my concern, namely -- his point that it may be very dangerous to assume that either sales growth will continue or that profit margins can continue to be where they are. (Competition not being dead, and the "moat" may not be as big as past years have indicated.) In most of my posts relating to my buying GOOG, I have so stated this, namely that I find GOOG a value buy IF profit margins hold. This all just how I am viewing GOOG and what I am doing. If others don't believe the reward justifies a purchase or the risk is too great or too indeterminable, then it's a pass and on to the next stock for consideration