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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: Joseph G. who wrote (18092)	10/10/1998 10:37:00 PM
From: RetiredNow	Read Replies (1) \| Respond to of 77400

Joseph, what if I told you that Cisco's revenues would be at or around $20 billion by the end of FY '01 from the $8 billion today. What if I told you there is $350 billion of antiquated telephone equipment that needs to be replaced by new world data gear? What if I told you that the market for data gear is expected to grow to $650 billion within 3 years? If Cisco loses the competition with Lucent et al, they still will grow revenues to $25 billion in the next 3-4 years. Would any of that change your mind? Would Cisco still only be worth $32 to you?

To: Joseph G. who wrote (18092)	10/12/1998 12:26:00 AM
From: joe	Respond to of 77400

>>Future earnings at a well above average for industry rates are sufficiently variable (that is, they can drop) as to create uncertainty greater than any influence of Treasury rates. That is, is the actual (not predicted) number will be +/-3%, it will make more difference to stock valuation than whatever long bond does.<< I disagree. The change from the long bond going from 6% to 5% is extremely significant on valuations. It could easily offset earnings growth of 50% to 30%. One thing that is necessary though, is for investors to feel that the 30% (or even 25%) is consistent. CSCO has a A+ rating in most investor's book. >>It is also worth noting that corporate bonds' interest rates are well above treasuries, as bond investors anticipate that corporations (which are not US Treasury) may have difficulty earning what they have to pay in interest on these bonds.<< Short term treasuries have dropped a lot in the last few days becaue of the Fed Fund being lowered. This will justify even higher P/Es for the market. True that corporate bonds are at higher yield now than T-bonds because a recession risk is being priced into corporate bonds. But, CSCO is not just an average corporation. It will have solid profits (maybe slower) even in a recession, since telecom sector will grow nonetheless. >><<It's called growth rate deceleration. One will have to put lower and lower numbers in future years. It may even become negative << OK, let's assume that CSCO growth lowers this next year. It still will be above 15-20%. It's not going to 0% or less just because it's decreasing. >>T-bond interest payments don't go down no matter what.<< If CSCO can give me a consistent 15%/year (very conservative), that's much preferable to 4% interest rate per year from bonds. Another way to look at it, is let's say earnings growth rate get's cut in half (very conservative), but it's still high-growth. Over 3,4,5 years you make up your losses and still come out better than gov't bonds. Of course this assumes that CSCO will be a dependable company in the next 5+ years.