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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: Freedom Fighter who wrote (533)	7/24/1998 12:11:00 AM
From: Axel Gunderson	Respond to of 1722

OK Wayne, I know New York is where you'd rather be, but you can still help with the chores. Your learned opinion is of interest. Now I know that you are not generally inclined to look at agriculture equipment manufacturers as potential investments, but the question here is about market cycles. Generally with cyclicals, they have high PEs at the bottom due to depressed earnings, and low PEs at the top due to higher earnings and prices that don't rise as fast as those earnings. The agricultural equipment manufacturers have been experiencing quite good growth in sales over the past few years. Recently they have warned of slow downs and push outs in certain markets, but have for the most part sounded optimistic about volume demand, especially in both N and S America. Over the course of 98 they have shed a lot of price on the NYSE. Case (CSE) has gone from about 60 to about 38, and now has a PE of about 8. Deere (DE) has gone from about 58 to about 42, and now has a PE of about 10. AGCO (AG), I don't know where it started, but it now has a PE of about 6. All of these look very good by free cash flow. My question to you is how would you approach analyzing this in terms of market cycles? I'm wondering if we should be suspecting that these pushouts and slow downs are the early signs of the start of the down hill part of the cycle - in which case these companies, and those that follow them, may be overly optimistic - or if the action on the stock exchange may be divorced from the fundamentals. Not that that ever happens, of course. Axel