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Technology Stocks : FSII - The Worst is Over? -- Ignore unavailable to you. Want to Upgrade?

To: Justa Werkenstiff who wrote (1712)	1/12/1998 1:10:00 PM
From: Kent Sarikaya	Read Replies (1) \| Respond to of 2754

Don about the thread name change I am all for it. How about... FSII? Short simple and to the point.

To: Justa Werkenstiff who wrote (1712)	1/12/1998 3:51:00 PM
From: Donald Wennerstrom	Read Replies (2) \| Respond to of 2754

Justa, You make a series of good points about the issue of the markets discounting properly the events in SE Asia. Certainly, the market has discounted a great deal, but probably not for each individual stock within the sector. A good example was LRCX last week with the 25 percent reduction in stock price. All it took for this pasting was for a brokerage form to greatly reduce the earnings estimate for the next 2 years. I think the issue of more earnings reduction is a problem. As I showed in the table just posted, the average PE of the group is around 11. The 11 figure is obtained by taking listed earnings estimates by Zack's and others and doing the arithmetic. Last year at the peak prices, the PE was over 20. Should we then argue that a "fair" price for the average of the group would produce a PE of around 16? If you believe that the "real yearly growth rate" of the group is closer to 20-25 percent, even the 16 is low. Personally, I would feel comfortable investing in the group at an average PE of 11, however, my problem is I can't invest in the average (unless I find a mutual fund which covers all these stocks). I think there are going to be several more formal earnings reductions put forth by brokerage houses, just like LRCX. I just don't want to invest in a stock one day at $X and then the next day have a "formal acknowledgement" by a brokerage house that my stock is going to have reduced earnings for the next 2 years - then find that my stock is now worth $0.75X. Another way of stating the above is to look at the swing in average PE since last April. In April it was around 12, then it went to 22/23 in four months, then back down to 11 in 3 months. The brokerage houses and analysts can't keep up with market sentiment. Probably the thing to do is to try to imitate the average of the group by buying several stocks within the group. If 5 to 10 stocks are purchased out of the 37 stocks listed with equal dollar values, an approximation of the average could be attained. This approach should protect against the dramatically poor performance of a stock or two. One thing the averages do show, none of the stocks in the group are exempt from general market psychology. They all go up together and they all go down together. Regards, Don W.