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

To: Proud_Infidel who wrote (21274)	7/9/1998 12:49:00 PM
From: TOM KARIS	Respond to of 70976

Take Murphy with a grain of salt. AMAT growth flow will even look cheaper when at $26.

To: Proud_Infidel who wrote (21274)	7/9/1998 1:26:00 PM
From: Dr. Bob	Read Replies (1) \| Respond to of 70976

Brian, The problem with Murphy's formula is that it values R&D dollars the same as earnings, whereas they are not the same at all. Earnings are for real, whereas some R&D pans out, some doesn't. And that varies from industry to industry, company to company. Intel's R&D money on Merced is just about a sure thing, whereas a biotech's R&D money searching for a cure for cancer is not. So his formula is a simple screening tool, but investors must still look at how the R&D money is likely to project into future earnings to get some idea of its quality. For AMAT and INTC, their track record is superb, their R&D focused, and I would agree with his conclusions in general, if not in timing (I'm more in keeping with Jubak's column in Microsoft Investor recently). For SFAM, for instance, their R&D may be entirely unsuccessful to allow them to keep up with AMAT, and thus using that formula for them (or other companies in a tenuous competitive position) may be misleading. As you said, it would be nice to see some backtesting analysis of how this formula would actually work. Bob

To: Proud_Infidel who wrote (21274)	7/9/1998 1:58:00 PM
From: Gottfried	Read Replies (1) \| Respond to of 70976

Brian, maybe I need a tutor for this? You said >GF is earnings per share plus R&D per share. His argument is that R&D spending is relatively stable from Q to Q, so when a company has lower earnings b/c it is spending much on research, the stock will appear cheap to investors who calculate GF long before it will look cheap to others on WS, which is totally focused on earnings. Let's say RD is fixed. Now I add a wildly fluctuating earnings number. The sum will be higher than EPS alone and will fluctuate less percentage-wise. So HOW do I see "cheapness" in the stock sooner? Put differently, if all earnings were used for R&D, I'd never know it by looking at GF. GM