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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: jhg_in_kc who wrote (66620)	9/22/1998 10:39:00 AM
From: Mohan Marette	Respond to of 176387

Tell the man to buy gold if he thinks half the world is in depression,yeah that is the ticket.

To: jhg_in_kc who wrote (66620)	9/22/1998 10:55:00 AM
From: D.J.Smyth	Read Replies (1) \| Respond to of 176387

jhg, it makes for good light reading. downside is there; or built in that is. at the cbot it's undertood there are both buyers and sellers and that the spread received on a trade is as important as the price of a particular item in a flat market. thus, it's as important that increasing volume trades are generated on Dell at $60 as they are at $70 or $45 or any other price. this individual presumes that sufficient volume will not be generated until dow is at 5500, regardless of earnings (this may have the opposite affect however, in that full despair leads to a market like Japan). it's important that volume continue at the current level. it's more apparent that although some weakness is inherit in volume which will affect Dell, Dell moves higher longterm once the selling is over (his argument about increased earnings and "simple math" is only true in a linear economy - which doesn't happen) depressions of the 1930s lasted six years. consecutive depressions have taken less time given quicker availability of capital

To: jhg_in_kc who wrote (66620)	9/22/1998 12:44:00 PM
From: Chuzzlewit	Read Replies (3) \| Respond to of 176387

jhg, I think you must like to read horror stories and scare yourself. This is an example of fear beyond reason. Here's why: 1. Dell trades at about 75 times earnings. wrong. It trades at about 75 times last years earnings. The multiple is considerably less for this years' earnings, and given the fact that Dell manages expectations very well it is probable that Dell will continue to surprise to the upside. 2. Even if earnings double in three years, and the stock winds up trading at a high multiple of 30 times those earnings, which it won't, you've lost money. This is pretty simple math. The devil is in the details, or in this case the assumptions. Here are the implicit assumptions: a. Earnings doubling in three years implies an annual growth rate of only 25%!!! b. Stock winds up trading at a high multiple of 30 times those earnings implies that there is an increase in long term interest rates and that there is a permanent slow down in Dell's growth rate. [I] have great respect for the business model. But so does Compaq, IBM, and every other potential competitor. The barriers to entry are weak, which means be careful. 3. As we have continued to point out, the barriers to entry are formidable. The only people positing this position are the ones who have not studied the problem in detail. *** Your tormentor goes on to invent a nightmare designed to frighten children and naive investors: ... the return on equity on the Dow today is something like 19%, a historic high. The historical average is 11%. That tells me there is some downside in earnings. And you are paying a multiple of over 20x on those earnings, which are arguably at a peak. So take that multiple down to the historical average of 15x, and take the ROE down to - I'll give you 15%, which is generous, and you've got downside risk of what, 20% on earnings and 25% on the multiple. That tells me the downside risk is well below 6000. More like 4500-5000. I suspect that he is not talking of the ROE, but the return to the investor. But note the subtle assumptions implicit in these statements: the historic average is 11% and a P/E of over 20x. You see, what he is doing is assuming away economic realities. The reason P/Es have expanded over their historic averages is because long-term interest rates are low. 30 year bonds are yielding a little over 5%! Invert that number and you get a P/E (yes, the inverse of yield is P/E!!!) of 20x. Now, since investors put money into equity markets in hopes of increases in future earnings and cash flows, it makes sense that the current earnings yields for equities would be lower than comparable yields for fixed income securities. Put another way, if the 30 year bond has a P/E of 20, then the stock market needs to have a P/E well in excess of 20. There is much more in the way of silliness in these fears, but I am beginning to suffer from cramps in my tiny cat paws, so I will leave it here. TTFN, CTC