To: wellab1 who wrote (2735 ) 5/3/1999 6:07:00 PM From: michael r potter Read Replies (4) | Respond to
With all due respect, since NITE was brought into the picture, allow me to respond. There are many reasons to be long term bullish on SFE, but the cited comparison is not one of them. Last quarters SFE engs. were boosted by their TLAB holding appreciating 37.5% for the quarter. TLAB is growing around 30% on sustainable basis and is at 47 X probable '99 engs. There may room for some multiple expansion, but nothing like even a 20% stock price appreciation each quarter going forward is sustainable. Conclusion: SFE's engs have been boosted primarily by TLAB which will not drive engs. in the future anywhere near what it has done. The real bottom line is still that SFE's engs. are virtually irrelevant for reasons cited in earlier posts. The price to sales ratio is to put it charitably, a joke, as almost all $2B+ is from Compucom, a company losing money in a market segment showing marked deterioration. What has SFE done since great earnings were recently announced? Tanked. Knight-Trimark reported real sustainable earnings of $37.4M for the quarter vs. year ago $8.4M a 4X increase on a 3X increase in sales to $184M. They processed 306K trades per day up 42% from the previous QUARTER! They hit 520K trades per day on April 14, and the CEO anticipates 1M. trades per day next year. IMO '00 engs. could be in the $5-$7 range which would put the PE on those earnings of [NITE $153 3/8] of only 22 X to 30 X. So what is the markets conclusion? SFE started the year around $26 and is now $77 1/8. NITE started the year at $22 and is now $153. The difference? Very real and explosive earnings. If we are talking profits and value, look at GM. One of my recent additions in the shift to value, it has app. $16B in cash, 10 X engs., bought back 1/4 of sh. in last 5 years. selling at only twice where it did in the 1960s. They earn more in a quarter than any internet stock [including AOL] will earn in the next two or three years. Continued cost cutting will boost the bottom line for GM even further. A tremendous value, even at a new high today +$4. [They are even making decent cars finally! even though most profits are from trucks]. Now that the Dow is over 11,000 does that mean that the beleaguered former darlings will get dragged up with it? If today is any indication, NO. Despite todays sparkling advance, MSFT, AOL, CMGI, YHOO etc. down along with the whole NASDAQ 100. After seeing another day of inverted leadership [value king] another small pool of individuals and mutual fund managers will become convinced that the change is real, and will be forced by the reality of what has been going on to start selling some over-priced former leaders and begin accumulating the the now ascendant value component. If this keeps up, it won't be long before "new era" investors [whose definition of long term is next Monday] start bolting internet stocks because they are now in the unfamiliar position of being on the outside looking in. IMO their patience is very limited, as they will not sit forever watching the Dow 11,000! headlines while their accounts loaded in Nets' goes down. They are used to gains NOW! If this continues much longer, don't put the previously posted possibility aside if the frustration reaches the breaking point and some bolt, "May could bring margin calls" The former leaders will have to put in more than a two day rally to prove they are once again worthy of the crown they have relinquished. Until then, value rules, and unfortunately, SFE does not fall into that camp. Rule #1 listen to the market, it will tell you what to do, and above all, don't fight it [unless you have a very good outside day job]. Still long SFE, and looking forward to the time when I can take profits in some of the new leaders, and buy more SFE because I violate rule #2 with Safeguard: don't fall in love with a stock. I have a long term belief in SFE management and future-but...not because of earnings, cash flow, or P/S ratio. Mike
