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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: Process Boy who wrote (57695)	5/9/1999 8:29:00 PM
From: Mani1	Read Replies (1) \| Respond to of 1573696

PB, Re<<always rooting for the second tier just because there is a first tier.>> I have no idea where you got this from Tad's comments. He likes AMD because considering the fundamentals it represents a good investment value at the current level. I know I just made a "no daa" statement, but it is really this simple. As he said, "But all of the fundamental analysis means nothing until it's tied into the valuation exercise." This is what most Intel fans on this board don't seem to consider. Mani

To: Process Boy who wrote (57695)	5/9/1999 10:11:00 PM
From: A. A. LaFountain III	Read Replies (2) \| Respond to of 1573696

PB - re:"analysis in some other sectors" My methodology is to try to identify where earnings growth can be purchased at the lowest price. To do that requires estimating the earnings growth and ascertaining the price. I use five-year EPS growth rates, which have the benefit of emphasizing the inherent appeal of companies during cyclical downturns, but tend to understate their appeal during particularly strong up cycles. This also means that I am much less tied into some of the more volatile shifts in analyst sentiment that can accompany really short-term (in my opinion) changes in EPS momentum. For example, my approach led to completely missing the moves in Intel and Micron last fall because my data indicated that the acceleration in fundamentals was overwhelmingly seasonal in nature and did not represent a positive shift in long-term growth rates. In further regard to Intel (even though this is an AMD thread), I find myself agreeing to many of your points, but drawing a different investment conclusion. Your references to Intel's strengths and management expertise are well-founded, but what I keep coming back to is the enormity of the task at hand. Turn the entire analytical process around, like solving the maze from the center to the entrance, and instead of trying to figure out how much Intel is likely to grow and what that growth would be worth, start with the current EPS and the stock price and then calculate how much the earnings would have to grow to justify the stock price. Then make some rational margin assumptions to back out what the revenue growth rate would have to be in order to generate the necessary earnings stream. When you do this, it becomes very easy to understand why Andy Bryant's presentation last November at the SF analyst meeting focused so heavily on cost and expense savings - because otherwise, the numbers don't work. The task of growing sales of this behemoth at 20% is probably unparalleled. I'm not down on Intel and certainly not on its management, I just feel that the task is so overwhelmingly difficult that it is inappropriate to assume that it can be accomplished. What's even scarier is that even if it is accomplished over the next five years, it would have to be done yet again in order to move the stock price, since the current price seems to already factor in most of the value that would accompany extremely high growth rates from the current level. Now, there is another aspect to this and that is the semiconductor industry cycle. When I laid out my coverage last June and stated the reasons for my belief in a major industry up cycle that would commence in 2Q99 (on average), I set out an investment strategy that focused on financial stability at the bottom of the cycle (last summer), differentiated products coming out of the bottom (this past winter) and leveraged/commodity producers during the heart of the cycle (which would be starting this Spring). It's interesting that my Strong Buys right now, which are determined by my valuation methodology, are Actel, AMD, Cypress and National, which represent some of the most leveraged names I cover. I have lowered my previous Strong Buys to Hold or Avoid on Altera, Analog Devices, TI and Xilinx, which are four companies that clearly fit the first two categories (either financial sturdy or vendors of differentiated products - or both). There is obviously no perfect valuation methodology, but staying disciplined with one that is basically sound has seemed to work best for me. I haven't been able to call all the stocks perfectly and entertain no hopes of ever being able to do so, but I have enjoyed some success at identifying some of the more egregious valuations and the percentages have paid off. When the numbers get small (like discussing one company or one pair of companies) as on this thread, it reduces the chances of success and that makes me feel less comfortable - to a certain extent, this is almost an actuarial process. So that's why I tend to couch my comments with a large number of qualifiers. - Tad LaFountain P.S. About the second tier/first tier stuff - I've always had a first tier orientation (and to this day can't understand how the Pirates beat my Yankees). But, as I keep telling my wife, I'm just getting impressively flexible as I age - at least mentally.