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Biotech / Medical : PFE (Pfizer) How high will it go? -- Ignore unavailable to you. Want to Upgrade?

To: R. K. (Chip) Constantian Jr. who wrote (2617)	5/20/1998 7:42:00 AM
From: Cosmo Daisey	Read Replies (1) \| Respond to of 9523

Chip, Is anybody worried about the high PE? Read on. cdaiseyPhD@plagerism.com fnews.yahoo.com " What may be surprising to some is that Coke is not it when it comes to being the winning stock in the Nifty Fifty. Cigarette and foods company Philip Morris (NYSE:MO - news) won the contest with a 19.9% CAR from January 1972 to June 1997. During that period, the company grew EPS at a compounded annual rate of an amazing 17.9%. Starting out with a P/E of 24, the company could have been priced at 78 times EPS to have performed in-line with the S&P 500 over the following 25 years. Philip Morris could have been priced at 50 times earnings and easily refuted the dour warning of Forbes magazine in 1977: "It was so easy to forget that probably no sizable company could possibly be worth over 50 times normal earnings. As the late Burton Crane once observed about Xerox, its multiple discounted not only the future but also the hereafter." Oh, what a joyous place America was in the post-Watergate Carter era. Forbes hedges its bets a bit, saying, "probably no sizeable company." In the period covered by Siegel, not only Philip Morris outperformed, but so did Gillette (NYSE:G - news) , Pfizer (NYSE:PFE - news) , PepsiCo (NYSE:PEP - news) , Bristol-Myers Squibb (NYSE:BMY - news) , Merck (NYSE:MRK - news) , General Electric (NYSE:GE - news) , and Procter & Gamble (NYSE:PG - news) . Of these stocks, an investor could have paid anywhere up to 50 times earnings and still outperformed the market. Now, this isn't advice to pay anything for any stock. Let me make this clear right now. Most companies possess crappy economics that cannot outperform the S&P's collection of the best and brightest 500 large companies that are traded in the U.S. Most companies are not worth owning at anything but the cheapest price, while some companies are merely attractive at current market multiples. Even the best companies bought at very high current valuations can turn in discouraging performance over a five or even 20-year span. The current state of the market bails us out on looking at compounded annual returns of these companies because valuations are high today. However, we are measuring peak-to-peak (if this is a peak, which I have no idea about) performance, not trough-to-peak as some do to boost representations of returns. At both ends of the Siegel study, stocks were "expensive." It's interesting to note that most of the Nifty Fifty underperformed the market over the ensuing 25 years. That's pretty much always the case. Over time, the companies with good economics spank those with mediocre to poor economics. As with any portfolio of stocks, there will be winners and losers. The trick to outperforming the market is to identify those companies with poor economics and not pay a high price for them. Identifying those companies with excellent economics and at least a competent to good to brilliant management team is more than half the battle in beating the S&P 500. "Value" is a component of growth, not just price. You HAVE to be right about quality, but sometimes it's hard to pay too much for excellent quality.