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Technology Stocks : MEMC INT'L. (WFR -NYSE) The Sleeping Giant? -- Ignore unavailable to you. Want to Upgrade?

To: Zeev Hed who wrote (3441)	6/7/1998 10:10:00 PM
From: Scott D.	Read Replies (2) \| Respond to of 4697

Wow Carl & Zeev, you have put WFR way up on the SI hot topic list!

To: Zeev Hed who wrote (3441)	6/7/1998 10:37:00 PM
From: Carl R.	Respond to of 4697

Zeev, frankly my disagreements with your forecast are very minor. First of all, even once the supply and demand situation gets under control, I think price increases will be slow, so I see a slightly slower increase in sales growth than you do, and slower recovery of pre-surplus margins. Of course a pleasant surprise here would be OK with me. <G> The fact that the company was willing to buy back stock using long term debt is a sign that they aren't too worried about the future beyond the next quarter or two. If they repurchase another million shares this quarter at depressed prices, this again shows me that they expect profits in 1999 much more than the words they say to analysts. Judge them by what they do, not what they say. These guys are conservative by nature, and if they are using up cash and issuing LT debt to buy stock, they are pretty confident about next year. My second area of disagreement is as to how high the PE multiple will go once this stock is "hot" again. I have seen some pretty ridiculous valuations in the past year in the semi area, so you may be right, but I am conservatively projecting a PE of more like 15 in good times. According to First Call, the estimate for this quarter is a loss of $.64/share. Of three estimates for 1999, two show profits (.10, .18) while one shows a loss (-.43). Estimates for 1998 range from a loss of $1.47 to $2.54 with a mean of ($2.00). Estimate for Q3 show a wide range from a loss of a dime to a loss of $.55 with a mean of (.37). With a loss of $.72 on the books for this quarter, using mean forecasts we get Q1=(.72), Q2=(.64), Q3=(.37), Q4=(.27). Presumably Q199 would be a small loss, and perhaps Q2 as well. Thus you are forecasting a slightly faster recovery than the analysts, which may well be correct. Analysts tend to be slow in seeing problems, and slow in seeing recovery. If they beat estimates this quarter and paint a slightly rosier picture, such as the scenario you describe, then the bottom should have passed. How can the price go down when the situation is resolving itself? I predict that tax-loss selling season will be a non-event for this stock unless the situation is not improving. Remember that the stock price is a pretty accurate indicator of where the company will be in about 6 months. Therefore, if the stock continues to drift lower, that is a sign that the recovery is proceeding slower than expected, and that we are unlikely to see profit in early 1999. The next month the behavior of the stock should tell a great deal. Good luck, Carl