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Technology Stocks : Qualcomm Incorporated (QCOM) -- Ignore unavailable to you. Want to Upgrade?

To: Cigar who wrote (11415)	6/11/1998 10:50:00 PM
From: Gregg Powers	Respond to of 152472

Cigar: My point is that the world seems to be a pretty scary place and a time when the U.S. stock market is trading at a valuation level that is historically unprecedented and investor optimism is fairly unbridled. There are many stocks, ranging from Yahoo to Coca-Cola, where the valuation does not appear to have any direct relationship to corporate fundamentals. Coke is a great company, but I don't understand how people pay 45x earnings for it. I suspect the same people that are buying it today probably thought Buffett was crazy when he piled into the stock (then trading at 10x earnings). The world certainly is not about to end...Suharto tried to flush Indonesia into the Pacific, but life (as painful as it is) will go on in Jakarta. With regard to Qualcomm specifically, and hedging risk in general, I spend an enormous amount of time think about company valuation on an absolute rather than relative basis. A stock trading at 20x earnings may look undervalued compared to a stock market trading at 27x earnings, but such a relative reference point can prove dangerous since the overall multiple is historically unprecedented and potentially subject to rapid downward revision. I try to live in an "absolutist" world. What do I mean? I think that on a "sum of its parts" basis, Qualcomm is worth something close to $100 per share today. Not because I think the earnings deserve some "goofy" multiple predicated on growth that will manifest itself at some distant point in the future. But because I feel that there is a specific transactional value for each of the company's business segments that could be achieved from a third-party such as Lucent or Nortel. So I am buying $0.50 dollars at today's prices--that how I sleep at night. As Jim Frost so accurately pointed out today, stock prices vary day-to-day by a far, far greater amount than the underlying business. Over the long-pull, I know of no better way to passively create wealth then to own stock in a good business, with good management, purchased at an attractive price. In many instances today it appears that investors have remembered the first two points and forgotten the third. Lucent, at 3.5x trailing revenue, comes to mind. A great company, well-positioned with good management--but is it three times better than Qualcomm? I don't think so. Still, current psychology is such that any stock that is "going up" is a good stock, and any stock that isn't appreciating on a daily basis is road kill. I frightens me to see so many short-term "momentum" players pretending to be investors. These people are likely to be harmed greatly when the correction inevitably comes. Hope this helps! Gregg P.S. I probably have gored a few sacred cows, so please don't flame me if I picked on one of your favorite stocks. My examples were not meant to be personal!