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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: Investor2 who wrote (196)	4/18/1998 11:57:00 PM
From: porcupine --''''>	Respond to of 1722

<< Has the value of GM more than doubled since January 1995? The price has. >> Comparing the lowest price of one year with the highest of another exaggerates the divergence. On a peak-to-peak or trough-to-trough basis, GM shares have advanced around $20 since 1995. If Intrinsic Value is the present value of future free cash flow, then GM's Intrinsic Value is largely dependent upon when the next recession arrives, and what happens to GM's finances when it does. In 1995, it seemed much more likely that the U.S. would be entering a recession in 1996 than it now appears viz. 1999. Meanwhile, the threat of overcapacity coming out of East Asia has greatly diminished, while the ability of GM (and Ford) to acquire the cream of those assets at bargain prices, and the leverage to enter formerly closed markets, have greatly increased. And, GM's ability to stand fast in the face of UAW demands was much more in question in 1995 than it is today. Imo, GM was greatly undervalued in 1995. So, its Intrinsic Value need not have fully appreciated all of the $20 in price gain for GM shares to remain undervalued. In plain English, the most important factor surrounding GM's Value, and the U.S. economy's, is their (mutually interdependent) staying power. Since 1995, GM, as well as the U.S. economy, have demonstrated an added 3 years of staying power.