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Biotech / Medical : Amgen Inc. (AMGN) -- Ignore unavailable to you. Want to Upgrade?

To: D. Stamp who wrote (420)	12/10/1997 11:12:00 PM
From: Jacob Snyder	Read Replies (2) \| Respond to of 1906

13 times 2.67 equals 35. 13 is the PE AMGN bottomed out at from early 1993 to early 1994. This was the last time this stock was out of favor, and I think that's where we are headed. 2.67 is current 12 month trailing earnings. Yes, I know, it's out of fashion to use trailing earnings. Everyone is using next year's earnings. I even read one long article by an obviously smart person, who said we should use the average of the next 4 year's earnings when calculating PE ratios. He summarised his thinking by saying that Coke was undervalued. I disagrea. So, 35 is my target price. Maybe you can make a case for 40, but no higher. If I'm wrong, and 50 really is a base, there will be plenty of time to get it at this price. In order to move this stock above it's current base, it will take a major new product (brought to market, not just blue-sky potential), with sales potential in the same class as AMGN's two current products. Or, maybe 3 to 5 successfull small niche products might do it. What are the chances of this happening in 1998? The chances are slim to nonexistent. AMGN spends a half billion on R&D a year, and I think that eventually something good will be produced. But I don't think this will happen till 1999 or 2000. The 8 insiders who sold in May of 1997, at about 64, knew what they were doing. Insiders are usually leading indicators. SI thread sentiment is usually a lagging indicator, which is why noone on this thread agreas with me, yet. In the meantime, I'm getting a bad feeling about the prospects for the market as a whole in 1998. I see a continuation of wild volatility, with several sharp deep sell-offs, in the coming year. The S&P 500 is currently at a PE of 23, (again, using old-fashioned trailing earnings). Historically, the usual range is 8 to 20, and moves above and below this range have never been sustained. Earnings are only going to grow at about 12% in 1998. As a rough guide, stocks are at fair value at a PE equal to EPS growth rate. Another yardstick is the formula: 20 minus the inflation rate equals fair value PE for the market. With inflation at about 2%, this gives an expected PE of 18, well below 23. All these traditional guidelines are being ignored by most investors today, and that is yet another danger signal. Sometime during 1998, during one of those sell-offs, I expect to be able to buy AMGN for 35. For the record, I do not and never have had any position in AMGN. As I stated in my first post (369), I am watching and waiting.