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Old 07-21-2002, 07:16 PM
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Default What to buy when the DOW tanks



This weekend I did a little analysis on the value of the DOW 30. Currently, there are only eight stocks in the DOW 30 that I would consider buying. They are Boeing Co. (BA), Citigroup Inc. (C), DuPont (DD), Exxon (XOM), Johnson & Johnson (JNJ), Merck (MRK), Philip Morris (MO), and United Technologies (UTX). If the DOW slides even further you may want to consider Caterpillar, SBC Communications, and Home Depot.


Everything else is overvalued. So, dispite the current frenzy in the stock market the DOW 30 is still overvalued. I expect more selling this week. Even the good stocks I mentioned will probably take some losses when more people start selling off their 401K stock funds and moving it to safer havens, if the panic continues you may see the DOW dip below 7000. So, I would wait until after August 15th before considering buying anything. I picked the 15th because that's when the CEO's have to sign off on their financial statements.


Lastly, I expect Cisco (CSCO) to finally take it's slide downhill. Over the years Cisco has been in just about everyones stock fund, even though it is extremely overvalued. It currently has a P/E of 91.00 !!!!!!! It's real worth is $3.19 per share. So, you may want to look for other companys like this with high P/Es and dump or short them. But, if short be careful. People still like CSCO because of what it represents, not what it is worth. But, eventually I expect it to tank like the others.


Good Luck


Mark


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Old 07-21-2002, 10:05 PM
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Default Re: What to buy when the DOW tanks



i am holding my dia puts...look good right now...gl
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Old 07-22-2002, 09:17 PM
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Default Re: What to buy when the DOW tanks



What can you base a company like CSCO on? The problem with CSCO is that it is like most tech companies in that it will have a huge run-up in earnings followed by flat periods. CSCO has too much money backing it and too much talent to create a pricing model with that low of a value. That would equate CSCO to a consumer brands company that is just generating basic earnings. I would agree the stock is probably a bit pricy right now, but I wouldn't be surprised to see it have a blockbuster quarter or two in the next 2 or 3 years that drive the price up. I would be careful in a one-size fits all model for figuring out a pricing strategy, companies that are based on innovation and creating home runs while enduring the strikeouts that CSCO faces right now will kill that kind of model, whereas something like a food company or consumer products company that will do quite fine. The quality tech names are still being held partly out of blind respect as you point out, but also out of the knowledge that this is how tech works. The quality names with tons of innovative talent will at some point be leading the market again, its just right now might not be the time to hold them. However if you miss out on the best three months of the rally they create, you won't get half the returns you hope for. That is why people hold them right now. That and the fact that they are held by people that lost a ton of money on them but see no point in selling, hoping for a rebound. So its a mix or rational and irrational investors. If in this dry spell CSCO hits 40-50X EPS I would start looking to accumulate. These types of companies will never look good EPS wise in rough times, but eventually they will shatter what you currently consider fair EPS at some point in their future.
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Old 07-22-2002, 09:40 PM
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Default Re: What to buy when the DOW tanks



Gold stocks, definitely.
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Old 07-23-2002, 03:00 AM
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Default Re: What to buy when the DOW tanks



willbill,


Cisco can not justify a high P/E ratio when it's future potential earnings do not justify it's price. In order for a company to justify a high P/E it has to have potential high growth. I don't see any evidence. Futhermore, their earnings were supported largely by the telco and dot.com boom during the 90's. I don't see the innovation. How can you sell something when no one is expanding their networks? Infastructure growth is going to be slow the next few years. Look what happened to the other tech companies in the past. Do you remember in the early 90's what happened to Wellfleet? Novell? Ashton-Tate?

I think Cisco is a highly risky investment.


Good Luck


Mark



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Old 07-23-2002, 02:31 PM
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Default Re: What to buy when the DOW tanks



Risky indeed, then again anything is risky if you overdo it. No one should own more than 5% of their wealth in any one stock name, after all 3 years ago who would have thought Enron or WorldCom would be worthless? However, you have to have risk to do well in the long run. That is the nature of stocks. This is among the names one should think about for the risky part of their portfolio. You have to be patient or you can take a little time and wait for it. Problem is if you wait too long, your downside risk won't compensate for the upside you could miss on a risky name such as this. As for the innovation, that is the problem. I remember this talk back in the early 90s, everyone thought PCs had pretty much run their course, just expensive toys for rich people and tools for a select few in the corporate world and in education and research. No one could have imagined the network and internet and how they made PCs what they are to our lives now. Trying to "see" or "find" innovation is a losing battle, you just see it or find it until its already developed. No doubt CSCO has a problem with lack of infrastructure spending, but that is only temporary. Anyone that has watched the cycles of high tech, especially Silicon Valley, knows its boom or bust and bust would definitely characterize it right now. However, those booms are amazing and develop like lightning. I was living in the Bay Area starting in 93 and people there then didn't see the boom coming and didn't acknowledge how big it became until it was almost over around the start of 2000. The boom mentality and the craziness with it really didn't catch on with most people until about 1998, yet history shows about 92 or 93 it really did get going. That is why I hold my view of CSCO and a lot of high tech. You may not see the innovation right now and they may not necessarily be a big player in the next boom, but you really can't say who will be. I put some faith in them and Sun and others because I know they are technical and development accumulators. Their assembled talent is nothing short of amazing, you could go through IBM and assemble its top 10,000 people in terms of talent and they would only resemble what kinds of specialized talent that CSCO has inside its businesses. That is what you are buying with a stock like CSCO right now, not earnings over the next year. If you want stable earnings and easy valuations then buy a consumer stock or banking stock, high tech is definitely not for you. Myself I keep myself very diversified and have lots of stocks from the basic such as casino stocks and transportation all the way up to very risky high tech and emerging markets investments, even a few shots at currency markets from time to time. It keeps things interesting and gives me a lot of safety should one thing fall. I have easily beaten the market this year though, I am only down 5% so far even though some things I have held have been pretty ugly.
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