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Technology Stocks : 3DFX -- Ignore unavailable to you. Want to Upgrade?

To: timbur who wrote (5984)	8/4/1998 11:12:00 AM
From: JR	Respond to of 16960

jpa.com

To: timbur who wrote (5984)	8/4/1998 11:13:00 AM
From: Sun Tzu	Read Replies (2) \| Respond to of 16960

Another Walk in the Woods I decided to visit the stockland again and see how the chips fall. In particular I set out to see where is TDFX's place in the universe. You are not unlikely to find any major revelations here, except perhaps for the magnitude of currents in the market. First of all, corporate earning growth is coming to a halt. It is one thing to see this in the press, and another to examine thousands of companies and see that quarter-over-quarter growth has dropped from ~9% to ~4%. Needless to say that the best performers all had great earnings growth. Another factor in the great performers (but not the very best ones) was good valuations based on Free-Cash-Flow to Price ratio (say 30+%). By now I was getting my hopes up for TDFX because all these conditions are met by it. I started to think that once the street wises up to the merits of this company, it will take off like a rocket. Sadly this does not seem to be likely. I programmed the computer to find me all the companies that have had quarter-over-quarter growth of over 15% (almost 4x the av.) and great year-over-year earnings growth, as well as good forward estimates and very good sales growth. Out of the 5000 stocks I found 200 companies to meet such strict requirements. You would have made money in only 40 of those and lost money in 160 of them. After examining over 190 factors (including forward looking ones) among the companies with great earnings and sales growth, the only difference between the winners and losers was size. The winners on average had a market cap of over $4.5B where as the losers had market cap of less than $1.6B. The sad thing is that the "expected" 3-5 yr appreciation for the losers was more than 4 times that of the winners. In other words, this market is not looking too far into the future. What it wants is quarterly earnings growth and tremendous liquidity. As for TDFX, it turns out that even taking market cap and other factors into account, it still underperformed terribly (boy was that ever a surprise :( It turns out that companies with TDFX like characters lost only 16% on average during last quarter, and that the median price drop from their 52wk hi was 24.5%. This means that TDFX should be somewhere between $20~$27 and not at $14 :( This analysis did not look at sector specific factors as that would have narrowed the universe too much for meaningful results. Be it far from me to argue with the tape, I ran a set of queries to come up with the list of the potential winners. I have a position in very few of them so far (though that is about to change) and I am not asking you to buy these. These guys are large enough that retail interest will not move them much one way or the other. I am presenting this as a sample portfolio of what the market values right now. Also unless you are a good trader, I don't recommend buying any of these baskets without hedging yourself (say by shorting SPX). IN FACT I AM NOT RECOMMENDING ANYTHING. Enough said. Here is the list: (Sleep easier portfolio) AWIN, CTL, CVS, DST, FISV, GILTF, LXK, NOK.A, OMC, SWY, TAN, WMI (more agressive portfolio) ALA, BGEN, CCU, CDN, CIEN, CSCO, GDT, GIC, KSS, NETA, OSI, PAYX, RHI, SBUX, TLAB, WLA Best wishes, Sun Tzu