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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: Gerald Walls who wrote (18538)	3/22/1999 5:43:00 PM
From: taxman	Read Replies (2) \| Respond to of 74651

does anyone agree? regards MARKET VALUATIONS ARE DANGEROUSLY HIGH It has been reported that just 20 of the 4,066 stocks that trade on the Nasdaq have accounted for 50% of the Nasdaq's rise since last October's low, and just five stocks have been responsible for 35% of the Nasdaq's rise so far this year. Now add in the fact that those relatively few stocks have become extremely overvalued in the process of rising so dramatically that they pulled the rest of their index up with them. For instance, General Electric's stock price is now valuing the company at $300 billion. The company has only $53 billion in annual sales, $9 billion in annual earnings, which grew 14% last year, and will grow less than that this year. That leaves G.E. selling at 33 times its earnings. Too much? As recently as 1995, G.E. was selling at 15 times earnings. At the low in 1990 it sold at 12 times earnings, and at the beginning of the bull market in 1982, G.E. sold at 8 times earnings. At a record 33 times earnings, can G.E.'s rally reasonably be expected to have much more life? On the Nasdaq, Microsoft, the company that replaced G.E. as the largest company in the world (based on its market capitalization), is being valued by the market at $400 billion. Its sales last year were $16 billion, giving it a price/sales ratio, (not price to earnings), of 25. It is selling at 68 times earnings. Until its recent decline, Dell Computer, which earned $1.2 billion in profits last year, was valued by the market at $120 billion, 100 times its earnings. Is it reasonable to bet that those already incredibly overvalued stocks, and their peers, which have provided the market's appearance of health, have much more upside left? At what point will profit taking overwhelm the reckless abandon of buyers? In addition to G.E., Microsoft, and Dell, Lucent is already selling at a P/E ratio of 87, Novell at a P/E of 65, Oracle P/E 50, Texas Instruments P/E 91. Then there's Coca Cola P/E 46, Home Depot P/E 60 Wal Mart P/E 43, Gillette P/E 58, Eli Lilly P/E 50, Medtronics P/E 76, Pfizer P/E 50, Schering Plough P/E 44, Smith Kline Beecham P/E 76. These stocks normally sell at P/Es around 15. This is going to end very badly, as have all overvalued, overextended markets in the past. (Street Smart Report, 169 Daniel Webster Highway, Meredith, NH 03253) Home Table of Contents Lead Article Next Article Previous Issues Carnegie Market Timing Model Investment Summary Recommended Mutual Funds Recommended Stocks Recommended Money Managers The Wall Street Digest (ISSN #0899-0530) is published monthly by The Wall Street Digest, Inc., Sarasota, FL. Donald H. Rowe, Editor and Publisher. © Copyright 1999 The Wall Street Digest, Inc.