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

To: Roy F who wrote (24404)	9/18/1998 10:54:00 AM
From: Gottfried	Read Replies (1) \| Respond to of 70976

Roy, thank you very much for the link to Jubak's discussion. It is just the kind of information I need. Some of his considerations seem familiar because threaders have posted them here. But I have not seen such a thorough screening method explained before. Gottfried

To: Roy F who wrote (24404)	9/18/1998 3:29:00 PM
From: Jacob Snyder	Read Replies (2) \| Respond to of 70976

re: Jubak's P/B value picks: I read all his columns, he's a smart guy, but I think he got it wrong this time. Using P/B isn't useful, because book value has no relationship to real (market) value. Therefore, it has no relationship to future earnings, or future stock price. Let's look at some recent examples: The day before Siemens turned off the lights and walked away from that British fab, what was its book value? It was full of equipment that cost a lot when new, and it hadn't had time to depreciate much, so there was a lot of book value. The day after they shut it down, the book value was suddenly zero. No one wanted to buy the fab, and the company had decided they couldn't make a profit selling what the factory could produce, so the real=market value of the fab was zero. What is the book value of all AMAT's 300mm development effort? A lot. What is the market value? By the time anyone wants to buy 300mm tools for volume production, they'll want tools at smaller line widths, so AMAT will have to totally redesign the tools. Anyone with more than my superficial knowledge of the industry can feel free to correct me on this. Ask yourself, if AMAT wanted to sell off their 300mm development effort, what could they sell it for today? Would anyone even make an offer? The real value is zero. There are numerous examples of companies going bankrupt, with large and impressive book values. I like sales, and P/S ratios, in preference to P/B or P/E, because: 1) the numbers are less volatile 2) the numbers correspond to reality 3) the numbers are harder to do creative accounting with. A lot of companies are having to restate earnings, but I haven't heard anyone restating sales. 4) quality companies, selling at the low end of their P/S range, have a consistent pattern of outperformance.