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Technology Stocks : Discuss Year 2000 Issues -- Ignore unavailable to you. Want to Upgrade?

To: C.K. Houston who wrote (1281)	3/24/1998 3:22:00 PM
From: E.H.F.	Respond to of 9818

I read the link. Yields can be decieving (he gives present yield of 1.5%). Allow me to introduce the Warren Buffet school of investing. I'll take KO as an example. Right now it's trading at 76.625 with a P/E of around 46. With 1.60 (last years earnings) that's a yield of 2.088%...pretty yucky right? Now, here is how a long term investor might decide whether to buy or not: Year EPS 1989 .54 1990 .50 1991 .60 1992 .62 1993 .83 1994 .98 1995 1.17 1996 1.38 1997 1.60 Growth is consistently in an uptrend, right? Using 1989 as a base and computing the compounded annual growth rate to 1997 gives a compounded annual eps growth rate of 14.54%. I don't know the actual equation (I use a financial calculater, where I input Present value(1989) Future value(1997), number of years(8), and then walla, the interest rate shows up. Now, to figure out what the eps would be ten years out, and using 1997 as a base, and 14.54 as the eps growth rate, you end up with an eps of 5.163 at the end of ten years. Apply today's P/E of 45 and you end up with a share price of 232.33. The compounded annual interest rate to get from today's price of 76 to that price 10 years out works out to be 11%. Not bad. But I'd like something better. Let's say that KO drops to 70 a share, which would make today's P/E drop to 43.75. Now the share price 10 years out would be $225.88. Now my compounded rate of return would be 12.42%...better. But that bond would still be paying that fixed rate (6% now), plus taxes would be applied to reduce its actual return, while your stock purchase would be free from taxes until the time you sell. Now, the Y2K problem can throw everything out of whack, but if it didn't exist, today's low yield as compared to a bond is not the best way to determine if a stock is overpriced for you. In fact there are companies out there with low yields that would give good long term returns even if you paid a higher multiple than exists now. I use the company's historical growth history as the fundamental measure of a companies worth, and then make a determination as to it's predictable certainty. Time, and the magic of compounding is the key, plus the ability of the company to sustain its growth. Today's low yields may bring about a correction, but not a crash, IMHO. Enter the Y2K, however, and standby to watch out. As I said I believe the panic will drastically lower prices, and I plan to capitalize on it. E.H.F.

To: C.K. Houston who wrote (1281)	3/24/1998 8:44:00 PM
From: Hawkmoon	Read Replies (1) \| Respond to of 9818

Cheryl, Be careful with how much credence you give to those "gloom & doom" reports. For one, the comment about lower dividends being paid out is bogus. Companies are chastised for paying dividends since the recipients are effectively tax twice. Investors today expect the company to take that money and buy back stock and thus, enhance shareholder value. Second, moneyflow into this market is on autopilot. 401(k), IRA's (especially the Roth) and various retirement programs provide a continuous flow of new cash looking for a place to be invested. It doesn't matter if the market is overvalued, that money has to be invested. Also, we have ever increasing quantities of overseas money coming to the US looking for a relatively safe harbor. What will cause the great crash of 1999 will be uncertainty surrounding the safety of our financial assets of all kinds. Timing the correction will be tricky but all it will take is one systemic failure of the infrastructure, financial or physical, due to y2k and people will head for the doors. I'm still trying to figure out how I will play it. Regards, Ron