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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: hpeace who wrote (10309)	12/6/1997 4:13:00 AM
From: Bilow	Read Replies (1) \| Respond to of 97611

Steve; Thanks for replying to my post. I would like just to make a few comments... I'm not sure what bilow, graphs don't show is good. means. I'm running a HP Vectra, with a 1280x1024 screen, and the graphs I left links to look pretty good to me. If you're running really low resolution, you might try printing it. So we agree that the '90 was a bad time to buy CPQ upon news of a split. You note that: the 2-1 split in 1990 was the Iraq war deal. everything went down the stock did go from 100 to 150 quick(presplit). the 1991 issue was the bad decision. Actually, the 1990 bear was over in 6 to 12 months, but CPQ spent most of '91, '92, and '93 below its 1990 summer high. You agree the stock was hit hard by a management error soon following good times? But it can't happen now, can it? Fact is, you make money in the stock market by buying low, and selling high. Now is the time to sell high. The general principle is to sell when the news is best, buy when the news is worst. It's all about prices. CPQ is a great company, I've known them for many many years. A certain graphics card that CPQ sold some time ago had my initials, CB etched into the solder-side copper layer, underneath the solder mask. It had some success around '88-'89. I flew down to Houston a half dozen times. FCC compliance issues. Met management. Ate at that Louisiana restaurant (Atchafalya?) the engineers generally take you to. But what I miss is the corn-battered catfish with hush puppies, mustard greens, black-eyed peas, and sweet potato pie. I'm not a stranger to CPQ, but I am sure that you have been following CPQ much more closely, and probably longer than I. On the other hand, you're a tree expert, and you're missing the forest. You've fallen blindly in love with a stock. Reductions in average computer prices is bad news for all the box makers. Remember that stock prices look forward, not backward. The Xmas sales you ought to be concerned with are Xmas '98, not this year's. And all the box makers are going to have to end up in CPQ's backyard for next year's Xmas party. What will 166 MMX boxes sell for then? And who will buy them? As Value Line says: CPQ is easily taking market share from second tier PC makers, but not from major players like Dell and Hewlett-Packard, which tend to meet or beat its pricing moves. Consider, too, that the current spurt in sales may not last very long given market saturation. Right now an amazing percentage of the american public already has access to the internet. Most of the remainder have never touched a mouse, and don't want to start now. So where does the future expansion in sales come from? The rest of the world? But the news from overseas is not pleasant. As Value Line says: On the overseas front, Compaq will continue to face domestic rivals and local manufacturers that are favored by local populaces. Why should investors pay top dollar now when there are these kinds of uncertainties with the markets? Basic difference between institutional buyers and regular money buyers is that regular Joes look at what is happening. The smart money looks at what is going to happen. And the guys who are reading the economic reports are selling stocks, and selling CPQ. The most important single thing about a stock is the P/E. Lets look at CPQ PEs for the last 12 years (Value Line figures): 1987 12.7 1988 8.9 1989 11.3 1990 10.3 1991 16.4 (bad earnings) 1992 10.8 1993 10.2 1994 10.8 1995 11.6 1996 11.9 See a pattern? Now a question. At current prices, is CPQ stock selling at historical retail or wholesale prices? Answer: Buyers at the current price are either going to get burned, or they are going to have to find bigger fools to sell their shares to. And the instituitions aren't buying, they're selling. And they have a lot of stock. My guess is that it will take an absolute minimum of 3 months for institutions to dump half their shares. Those 3 months aren't up yet, though we could be halfway there. Of course, I could be wrong, and CPQ could go higher. But why should the stock price go higher at a rate faster than their recent sales growth of 23%? Its already coming down from the most expensive (P/E) it has almost ever been at. The positive momentum is gone, the negative momentum is here. If it drops back to an average P/E for the last 10 years current investors will get badly burned. Of course it could drop to a lower than average P/E too. So the downside is lot farther than the upside. Why take the chance? As far as my agenda, you already know I'm long CPQPL puts. And you're long the stock. Seems pretty clear as to what our agendas are around here. We're just illustrating differing opinions, without which the market would get mighty dull. -- Carl