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Strategies & Market Trends : Electronic Contract Manufacture (ECM) Sector -- Ignore unavailable to you. Want to Upgrade?

To: jeffbas who wrote (928)	12/3/1997 6:14:00 PM
From: 18acastra	Read Replies (2) \| Respond to of 2542

Jeff-respectfully disagree. First of all, if a company is a cyclical growth company and growth is oscilating between 25% and 50% (Cisco), it should be priced off a normalized growth rate. These companies are not Auto Manufacturers or Airlines that will go into a shrinkage/negative cash flow phase when the economy slows down and therefore deserve a low multiple on midcycle/peak earnings. Secondarily, the CEMs are not cyclical. If you look at data going back through the last recession, SCI and SLR grew like crazy. Remember, they are part of the trend of continued outsourcing by OEMs (and since only 20% outsourced, still a long way to grow). Regardless of what the economy or Cisco or 3-Com or Cabletron does, these companies will continue to grow rapidly due to the macro-trend. You may be right in saying the market believes these companies are cyclical and deserve a multiple beneath current growth rates, however I believe the market is wrong. The data indicates continued rapid growth even through recession. The market will eventually realize this (maybe tomorrow). In all seriousness, the market is a fickle and imperfect mechanism over the short run. One week these companies are the best, the next week they are "cyclical growth" companies. Wild stock price gyrations are the product of a largely uneducated/fickle institutional investment community that puts money to work with little discretion/belief in what they invest in. The money comes in fast and it goes out fast. Be careful not to draw too many conclusions from stock price gyrations->draw them from the performance of these businesses. I believe it will continue to be spectactular over the long run. My opinion.