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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Big Bucks who wrote (20942)	6/28/1998 2:31:00 AM
From: zsteve	Read Replies (2) \| Respond to of 70976

From this week's Barron's: interactive.wsj.com >>>>cott Black Barron's: It's been a tough six months for your kind of stocks, Scott. Black: We're up between 11% and 12% -- which, for small- and medium-caps, isn't too terrible. But it's been hard. We're getting hit on small tech stocks. Even good values, with clean balance sheets, are cratering. Q: Is the market going to stay tough? A: I never try to forecast it. But on pure valuation, the S&P's close today [June 17] was 1107. The operating earnings are $47.50, so that's a 23 multiple; 4.5 times book. You have roughly a 1.3% dividend yield. I think the market is vastly overpriced. I would actually say more overpriced than in '87. What it reminds me of is the Nifty Fifty era -- 1973. Q: The narrowing breadth is certainly reminiscent of that era. A: Also some of the blue chips, companies like Coke, selling at over 40 multiples. It used to be the rule of thumb that you shouldn't have a higher P/E on a growth stock than its growth rate. Many of these are only 12%-13% growers. So this reminds me of Avon, Xerox, Litton and Polaroid -- before they got bombed in '73. Ultimately, 12%-15% growth doesn't hold up 50 multiples. For the stock market as a whole, corporate profits were up only 2.9% in the first quarter, are probably slowing again. I don't understand how you get a 23 market P/E with no growth in profits. Q: There are a lot of bang-up fourth quarters expected. A: Those analysts are looking a long way across the valley. I'm a realist. If corporate earnings are growing very slowly, they aren't suddenly all going to turn in the fourth quarter. True, it's just one sector, but I've been talking to companies we own out in Silicon Valley. Other than the few that aren't hooked to PCs -- for example, LSI Logic -- they tell me business just disappeared in April and May. Whether it wasKLA-Tencor, Cohu, Applied Materials, the story was the same. It's a lot worse than many of the sell-side analysts want to believe. The turn may come a lot later than people think. Q: What's ailing them? A: Korea and Japan are in desperate straits, and they are a lot of the swing factor at the margin in those companies' backlogs -- and there are no orders out there. It's very hard for a Korean company to tool up when it can't get a bank line -- and half those companies are under water. That's the real issue. I asked, for example, the No. 2 guy at KLA what it'll take to turn the industry. He said it was getting the supply/demand balance in DRAMs into equilibrium -- and we are a long way from there. <<<<<<<