Market Prognostications

These comments about the market were written 4/17/2000 and may become outdated soon! (see an update on how these picks did as of 5/2/2001)

 **If you don't know what a P/E means (price to earning ratio), then you can get that info at the bottom of this letter.   Without an understanding what a P/E is, you can't properly value stocks.

 Despite record market volatility and wild overvaluations, there are some good buys out there.   These stocks may not rally right away, but you won't lose much on these even if the markets remain weak or volatile.

• GoodYear Tire  GT  price 27   P/E 17 with an expected profit growth rate next year of 30%
• First Data Corp FDC   price 38   P/E 15 with an expected profit growth rate next year of 15%.  FDC is the largest credit card processing company.  They process all my sextoy orders!
• *** IDT Corp   IDTC price 30   P/E 10 next years expected profit growth in profits is 80%!  Also, They own 25% of netphone.com which ATT, Yahoo, and AOL are backing as the standard for phone calls over the internet.   I don't know what I am missing, but this looks to be a great buy.   (however I may be missing something . . .)
• Bausch and Lomb   BOL  price 56 P/E 8 with an expected profit  growth rate next year of 15%
• Wells Fargo WFC   price 41 P/E 18 with an expected profit growth rate next year of 20%
• DuPont DD price 59 P/E 9 with an expected profit growth rate next year of 15%
• VISX   (leader in eye laser equipment) price 15 P/E 16 with an expected profit growth rate next year of 15% 

If you love risk, here are some Risky Bets, that could turn out to be big winners in several years.

•  American Ski company sells at 2.5 per share. They are losing money and have a lot of debt, but the company has a market cap of 70 million yet has 330 million in sales.   Also, they own 25% of the ski market and they have the best ski areas.   Basically they built ski areas too fast, but they don't look like they will go bankrupt and eventually as they get their debt under control the value of the company can increase a lot.
• New Frontier Company NOOF - they own adult membership sites and develop software for streaming video on the internet.   Time Warner recently started using their products for delivery service.  The company sells for 4 times sales which is reasonable if they continue to be a leader in video delivery services on the net.  They are also currently the best play for video sex on the internet.

 For those of you who think technology companies are a good buy because they have fallen by 40%.   Look at these P/E's and expected growth rates, not that great . . .

• Microsoft MSFT   P/E 50 with an expected profit growth rate next year of 15%
• Cisco   CSCO P/E 165 with an expected profit growth rate next year of 30%
• Sun Microsystems   SUNW  P/E 100 with an expected profit growth rate next year of 30%

Compare that to: Good Year tire   P/E  15 with an expected profit growth rate next year of 30%. Good Year Tire is selling at 1/11 the price of Cisco but has the same projected growth rate next year. (I am sure Cisco will grow much more than Good Year over time, but paying 11 times more for faster growth down the road is NOT worth it.)

 If you LOOOOVE technology the only buy I can find is

World Com - WCOM price   41  P/E  30 with an expected profit growth rate next year of 30%. They have the largest internet backbones and the Prez Bernie Ebbers has huge balls.

 In regards to high flying money losing or 100 plus P/E internet stocks, they are nothing more than a pyramid scheme and we are on the downward slope.

 The P/E explanation

**Buying a stock is buying a piece of a company.   The value of a company is based on the profits the company makes today and in the future.  The Price to earnings ratio of a stock (P/E) is the ratio of the Price of the stock compared to the profits the company makes.  Therefore, the higher the P/E, the more you are paying for company profits. Over the last 100 years around the world the average P/E has been about 15.   Also, historically when P/E's get too high, the market corrects and we realize that wildly optimistic projects were just too optimistic. 

 -If anything I have written appears to be wrong to you, let me know!  david@wcool.com 

These comments about the market were written 4/17/2000 and may become outdated soon!