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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets! -- Ignore unavailable to you. Want to Upgrade?

To: Proud_Infidel who wrote (5516)	5/23/1998 10:44:00 PM
From: Jacob Snyder	Respond to of 10921

Brian: Since you guessed the high for AMAT in 1998 would be 60 (10% above their all-time high, at a PE of 44 (given earnings of 1.35)), and I guessed 40, which we've already hit, we represent opposite poles of the AMAT thread community. Thanks for your thoughtfull post. You said: 1. "PSR= 2-3.5 is unfair and not realistic given market fundamentals." What fundamentals? The S&P is at a PE of 27 (trailing earnings= known facts), but EPS will only be up 5% or so this year. What's the PEG on that? Will EPS growth accelerate in 1999 to approach the PE? No chance of that. The reason earnings have gone up so much since 1980, at a rate far faster than sales growth, is that wages grew at a rate slower than the rate of inflation. That is now over. 2. "INTC and CSCO trade at steep premiums to their competitors" AMAT is not in the same catagory, and is not anywhere near as far ahead of the competition. NVLS is developing a line of copper tools to rival AMAT's next generation products. Who is developing a rival for merced? I see all their potential rivals quietly backing off. Are COMS and Bay gaining on Cisco? The telco equips (slow dinosaurs whose corporate culture was formed in an age of government-supervised monopoly) will be the next to see their markets go to Cisco. AMAT won't be in INTC/CSCO/MSFT status for at least 10 years, if ever. 3. "AMAT has proven itself through downturns and has a history of making $$ when others are hemmoraging it. It is my belief and expectation that the Street will place AMAT in a different corner than the rest of the sector." In 1996, AMAT made good money throughout the downturn, lowest EPS was 0.24 reported in Feb. 1997, but the Street still gave them a P/S of 1 at the bottom. Next quarters EPS will be .22 (management said so), the worst yet. A year ago, estimates for next quarter (3Q 98) were 0.55. NVLS, KLAC, ASMLF all have the resources to continue R&D through the downturn. I think you will be right during the next downturn (2003?). 4. "AMAT at $13 would be trading at a p/e of about 9 using '98 earnings" The rising sine wave of earnings in this cyclical/growth zero-visibility industry is phase-shifted over from the rising sine wave of stock price. That's why P/S is more usefull. In addition, earnings estimates are very unreliable. There were people who bought AMAT in summer 1997, because the analysts were telling them the company would report EPS of 0.55 in August 1998, and 0.58 in November 1998. Those same analysts are now saying 0.22 and 0.23; those investors who used forward P/E ratios, and analyst estimates and recommendations, to guide their stock-buying, have learned an expensive lesson. 5. "To say AMAT should trade at a PSR of 1 because it has done so in the past is the one flaw I can see in your logic." The art of stock-picking is mainly pattern recognition. The only way I know to predict the future is to look for the consistent patterns of the past, and assume that they will continue in the future. When conditions move outside the pattern, the most likely next step is a reversion to the mean. Yes, there are abrupt discontinuities, but there are far more continuities. For every real New Age there are 10 False Hopes and 20 Dead Ends. You're trying to convince me that history is meaningless; I'm trying to convince you to stop your wishfull thinking.