From: jamesr@best.com
Date: Tue Oct 14 1997 - 11:19:32 MDT
At 11:51 AM 10/13/97 -0700, Ramez Naam wrote:
>
>> From: Ed Sona [SMTP:edward.sona@pobox.com]
>> What companies would you recommend? It seems that everyone agrees
>this
>> is a
>> good idea, but I haven't seen a lot of specifics.
>
>Since I work in infotech, my investments are currently concentrated
>there. Following the general strategy of picking market leaders in a
>fast-growing market, I would recommend a distribution of investment
>capital among the following companies:
>
>Microsoft
Although the P/E is a bit high, Microsoft will almost certainly make it a
reality, so this would be a decent investment.
>Intel
Intel has a high P/E for a chip vendor, but since many of Intel's
competitors are essentially folding to Intel (e.g. DEC, HP ), this company
should continue to exhibit strong growth. This would be a reasonable
investment.
>Compaq
*Hell no*. A P/E of 37.8 is absolutely absurd for a hardware vendor. The
only reason the price has risen to such an absurd level is the glut of
money in the market driving up the prices for blue chips. This would be a
poor investment IMO. Not to mention that Compaq is facing dangerously
strong competition from Dell and HP.
>Dell
Another hardware vendor with an astronomical P/E ( 49.6 ). The problem
with investing in corporate PC vendors is that the market is relatively
fixed. Companies grow by stealing market share from someone else, such as
the case is with Dell. The market share of PC vendors is quite unstable
and can shift suddenly and unpredictably on a very short timeframe. This
P/E would suggest that Dell will remain *the* market leader for at least a
decade. I wouldn't bet on it...
>IBM
At a P/E of 18.1 and a healthy EPS, this is would be a good "value" based
investment. IBM will most likely continue to grow at steady and
respectable rate for the foreseeable future. They are worth this much
based on their intellectual capital alone.
>Sun
Sun will be reasonable investment for a couple years, but its long-term
prospects are fuzzy. It's growth has been at the expense of other RISC
vendors, but that won't last forever, and their hardware isn't that great
relative to their competitors. If they focus a lot more on software, they
may have a chance.
>Netscape
I don't have much of an opinion on Netscape. Unless they decide on a
specific direction and execute it with some force of will, Netscape will
dwindle IMO. They can't make a profit now and I don't see why they will in
the immediate future. It wouldn't surprise me if they get bought out or
merge in a couple of years from now, probably with one of the big database
vendors.
>Oracle
At a P/E of 51, I would neither buy nor sell Oracle, because strong future
growth is uncertain beyond a couple years. It's got some growing space,
but if Informix gets its act together, they could seriously impede the
expansion of Oracle. Many parts of the developing world, such as Asia, are
primarily Informix territory. And Sybase is once again competing, from
behind, but somewhat effectively against Oracle for NT servers. Another
surprise: IBM'S DB/2 is making strong inroads into Oracle territory
according to recent reports (!?).
Oracle won't weaken, but there is no guarantee you'll show strong growth
for any period of time either.
>
>Of these, performance over the past 5 years ranges from the moderate
>(50% in two years for Netscape) to the truly astounding (2200% in 5
>years for Dell). Compaq, Intel, and Oracle all come in between 1000 and
>1300% over the last 5 years. Microsoft is a comparatively measly 500%.
>IBM an anemic 200%.
These statistics are largely irrelevant based on market conditions at the
time these values occurred, and in the markets that some of these companies
are in. I can guarantee that Dell will *not* show a repeat performance in
the next 5 years, despite their strong growth in the past 5. Compaq will
choke. IBM, although anemic, is a steady reliable earner. Additionally,
companies like IBM are not traditional "growth" stocks, and shouldn't be
expected to behave as such.
>A couple caveats:
>
>1) This performance reflects a very strong bull market in the same
>period. A bull market especially favors growth stocks.
Yep.
>2) This investment strategy is quite likely to produce years of negative
>growth. Use it only if you are willing to accept some risk, and willing
>to hang on tight to your investments for a period of several years.
Blue chips tech stocks will be a *bad* place to be for many years. The
mutual fund money glut has driven up blue chip prices to an unsupportable
level. It will take a long time to recover something resembling value from
many of these stocks due to the currently lofty valuations. Invest in
these at your own risk.
-James Rogers
jamesr@best.com
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