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

To: Spekulatius who wrote (42991)	6/12/2011 3:59:45 PM
From: E_K_S	Read Replies (1) \| Respond to of 78753

Hi ClownBuck - Of the three companies you mentioned, MSFT, CSCO and INTC isn't CSCO the worst offender for using stock options as you explained? The last time I looked, CSCO's use of stock options was still quite large. That is one of the reasons I am hesitant on starting a position in CSCO. What is meant by residual value? Is this the same thing as the BV of all assets after adjusting for accumulated depreciation? Is this a meaningful value for high tech companies or actually meaningless as it would be composed of worthless legacy technology and/or patents and/or worthless goodwill (more so in CSCO's case)? I am not sure for CSCO or Microsoft but after R&D expenditures isn't one of the largest use of capital for Intel spent on their manufacturing facilities? This would include the construction of new Fab plants and/or the upgrading of their old Fab facilities? I suspect the future cost of capital would impact Intel more than MSFT and maybe to a lesser extent CSCO. I own both MSFT and INTC and have been thinking about starting a tracking position in CSCO. I think of the three I like INTC the best for their consistent growth over the last 10 years. Their management also seems to have made the fewest mistakes over this time period. What's your "valuation" view on CSCO vs Intc? Analysts have both the forward PE's at around 8.5. I think I would give the nod to Intel because of their consistent management. finance.yahoo.com EKS

To: Spekulatius who wrote (42991)	6/12/2011 11:49:45 PM
From: Jurgis Bekepuris	Respond to of 78753

Residual value - you make it out to be a DCF problem, but it actually is a problem of most valuation models except for Graham net/nets. Let's say you use P/E. If you buy P/E is >5, you are putting a chunk of value into what company will earn after five years - very similar to residual value in 5 year DCF. If you buy at 10 P/E, you are now at ~1/2 value after 5 years. Sure, depending on how you define residual, DCF may have a bigger part of value in residual, but if you are using simple P/E, you are not discounting the future earnings at all, so you can't even clearly tell what's the residual in a P/E metric. ;) On the other hand, if you run 10 year DCF, the residual will be much smaller, but obviously you have to extrapolate for 10 years. IMHO it's a bit disingenuous to fault DCF with residual issue when you have never discussed it within other valuation models. ;)