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

To: Bob Davis who wrote (75103)	10/28/1998 6:46:00 AM
From: nihil	Read Replies (2) \| Respond to of 176387

RE: Nepeague evalations of Four Horsemen of the NASDAQ I prefer "four horsemen" to "pillars" because it is a more dynamic metaphor, and pillars are subject to being toppling, while horsemen tend to move on. Very interesting reports, well worth reading by everyone. The debate over evaluation of these companies will never end until they are ground to dust. It is easy to see in the decay of EPS growth of all of them a secular decline -- but it is also easy to sea a pause or hiccup arising from the problems of the world economy. Intel, for instance, earns perhaps 60% of its profits from outside the U.S. and MSFT and CSCO are also very international. I think world recovery over the next few year will push them all forward rapidly, because I do not see anyone else moving in on their profits. Your method, as I understand it, systematically ignores the possibility of EPS growth greater than 25% which pretty much cripples the intrinsic vale of CSCO, MSFT, and DELL. You also ignore the dominant position of these companies in market value added in their own industries. If you compete against any of them, you lose. If conditions in the market itself prevent rapid growth of profits, then the dominant firm's potential is limited, but ultimately it means the competition must cut back, can't expand, and leave the field to the dominant firm. Anyone who thinks that PC's and Servers. x86 mpu's, PC software, and backbone networking are going to grow slowly are simply wrong. To demonstrate that these four firms will fall behind in EPS on an absolute basis, will have to explain who is going to take over the markets. Thanks for the good work (keep up the work on the EVA and MVA).

To: Bob Davis who wrote (75103)	10/28/1998 11:40:00 AM
From: Reginald Middleton	Read Replies (1) \| Respond to of 176387

I briefly read through your analysis, and it appears as if you are basing your analysis on unreconciled earnings, which is analogous to building a structure on a weak foundation. MSFT earnings, for instance, are subject to significant deferrals, reserves, and mispriced contingent liabilities. Dell, happens to use the same methods. In order to use capitalized earnings to ascertain a credible present value for a company, you must first ascertain what those earnings actually are, the sustainability of those earnings, and any excess equity capital equivalents that have not been reported in the financial statements. Keeping your intrinsic value idealogy in mind, I invite you to read the Case Against Earnings at rcmfinancial.com Afterwards, I welcome you to debate the relative merits of the respective approaches to "realistic" valuation.

To: Bob Davis who wrote (75103)	10/28/1998 10:49:00 PM
From: Chuzzlewit	Read Replies (1) \| Respond to of 176387

Bob, thank for an interesting glimpse at valuation models applied to growth stocks. What I found missing in these documents is really essential if you are going to use DCF methodology to appraise a company. That is, the concept of risk. Actually, the market embodies this pretty well by rewarding market leaders like DELL and CSCO and healthy premium over their smaller brethren. In essence, the market uses a lower risk adjusted discount rate because of the competitive position that these companies have achieved. I have great difficulty accepting Graham's heuristics because his numbers are arbitrary. As you correctly point out, the DCF analysis depends on the prevailing interest rates, and this makes for fluid valuations. The real problem I have with these approaches is that they ought to be modeling behavior, not determining what rational behavior ought to be. Put another way, a good multiperiod valuation methodology should be generating numbers that comply fairly well with the market. If they don't, then my inclination is to question the model (not the market). So concluding that DELL, or any other issue, is "overvalued" is normative based on the assumption that the model you choose is correct. I think a more rational approach is to assume that there is a problem with the models since they do not reflect market-determined values. And as any economist will tell you, the value of anything is what is agreed to by a willing, informed buyer, and a willing, informed seller. And aren't those the people who trade stocks? TTFN, CTC