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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Knighty Tin who wrote (34718)	10/28/1998 7:06:00 PM
From: Ilaine	Read Replies (1) \| Respond to of 132070

Hi Mike, thanks for making Pfizer the example. I have been feeling very smart for scooping it up a couple of weeks ago when it dropped down to $88. Actually, I vacillated, and paid $90.50. >>>>I think you are confusing undervalued with low pe ratio.<<<< Ouch. Even I have figured that one out. Some things are cheap because they are worthless. >>>>I think that Pfizer at 42 times eps is grotesquely overpriced.<<<< You probably don't like 50 times eps, then. <g>(consensus estimate 10/8/98 First Call = $2.12.) >>>>How much a co. is worth has more to do with the co. and with the risk free rate than with arbitrary standards like high or low pe ratios.<<<< OK, Mike, since you mention it, I have been dying to ask, but I didn't want to pry: what is the mechanical process you, personally, use to value a company, and what data do you rely on? If that isn't too personal. I just signed up for free research from Merrill Lynch, I am really impressed by the comprehensive nature of the financial information provided. Whether it is valid or not, I am not going to recalculate it. I compared it with similar research from S&P, they look sort of the same. Price of Pfizer plumetted briefly because somebody else out there blew it badly, though, Pfizer spent a lot of money ramping up to sell Celebrex, which is being touted as the new wonder drug (pain killer, anti-inflammatory, actually developed by Searle/Monsanto, rumored to prevent cancer and Alzheimer's), and that was misinterpreted, also sales of Viagra declined, but not as much as feared, last quarter earnings inflated due to middlemen having to start the pipeline going. I knew this because I follow Monsanto. >>>>>Is 5% eps growth worth 23 times eps?<<<<< I don't know, but where did you come up with 5%? On October 14, Merrill Lynch projected 5 year eps growth of 20%. I am looking through report from S&P, can't find S&P's projected earnings, but I see that the historical 5 years earnings growth is 31.35%. ROE in 1997 was 29.7%, ROA 14.8%. >>>>>Not unless the risk free rate is 2.2%. And it is not.<<<<< I am getting about 5.25 in money market - isn't that my risk free rate? Mike, thanks for all your help. You are a gentleman and a scholar. CobaltBlue

To: Knighty Tin who wrote (34718)	10/28/1998 10:23:00 PM
From: gambler	Read Replies (1) \| Respond to of 132070

Is 5% eps growth worth 23 times eps? Not unless the risk free rate is 2.2%. And it is not. Mike, I know I studied this in a finance class before, but I can't remember the formula. Please explain how you came up with the 2.2% rate figure. I ignorantly subscribe to the PE should equal EPS growth rate theory. It would be interesting to know how to adjust this theory to varying interest rates like you state above. Just for fun, what PE do you believe PFE should get? Thanks, Gambler