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Top 1962. Oct 12, 2001 2:56 PM

» mdorsey - As Earnings Plunge, the Market's P/E Ratio Sets a Record

The bubble burst a long time ago, and now stock market valuations are far more reasonable.

So goes the Wall Street line. But a look at the numbers raises questions about that happy conclusion. The price-earnings ratio of the Standard & Poor's 500-stock index reached its highest level ever yesterday, at 35.99. That figure, based on reported profits over the last 12 months, exceeded the record of 35.82 set on April 12, 1999.

-- posted by mdorsey

Top 1963. Oct 12, 2001 3:04 PM

» Rande - Re: As Earnings Plunge, the Market's P/E Ratio Sets a Record

In response to message posted by mdorsey:

And don't forget the lousy dividend yield and frightening price-to-book. What with bonds perhaps nearing the end of their run, and money markets susceptible to terrorist activity the best place for some might be certificates of deposit or a hardened steel safe encased in the concrete floor of their sub-basement.

-- posted by Rande

Top 1964. Oct 12, 2001 3:44 PM

» Rande - The Latest -- 10/12/01

Nice to have three up weeks in a row. Hopefully, all those references to the market's historical tendency to rebound from disaster were helpful for some. Looks like we're seeing market history repeat itself yet again. So far anyway. In any event, enjoy the weekend. First, here's......

The Latest (as of 10/12 close):

YTD 2001:

DJIA -13.4%
S&P -17.3%
SPY -16.0%
VTSMX (W5000 Index Fund) -16.7%
Nas -31.1%
QQQ -40.8%
R2000 -11.4%
MDY (S&P 400 Midcap) -10.9%
VEURX (European Index Fund) -24.2%

Since 12/31/99:

DJIA -18.7%
S&P -25.7%
SPY -23.8%
VTSMX -25.2%
Nas -58.1%
QQQ -62.2%
R2000 -15.1%
MDY +4.7%
VEURX -30.0%
50/50 Total Stock/Total Bond -2.15%
(includes Total Bond through yesterday)

Since Previous Closing Lows:

DJIA (9/21/01) +13.5%
S&P (9/21/01) +13.0%
SPY (9/21/01) +13.0%
W5000 Fund (9/21/01) +13.3%
Nas (9/21/01) +19.7%
QQQ (9/21/01) +22.6%
R2000 (9/21/01) +13.1%
MDY (9/21/00) +12.5%
VEURX (9/21/01) +16.9%

Since Previous Closing Highs:

DJIA (1/14/00) -20.3%
S&P (3/24/00) -28.5%
SPY (3/24/00) -27.1%
VTSMX (3/24/00) -30.1%
Nas (3/10/00; ) -66.3%
QQQ (3/24/00) -70.7%
R2000 (3/9/00) -29.3%
MDY (9/7/00) -16.3%
VEURX (3/24/00) -32.4%
___________________________

Benchmark Closing Lows (lows since previous all-time highs):

DJIA 8235.81 (9/21/01)
S&P 965.80 (9/21/01)
SPY 97.28 (9/21/01)
VTSMX 21.40 (9/21/01)
Nas 1423.19 (9/21/01) (intra -- 1387.06 on 9/21/01)
QQQ 28.19 (9/21/01) (intra -- 27.20 on 9/21/01)
R2000 378.89 (9/21/01)
MDY 74.45 (9/21/01)
VEURX 16.85 (9/21/01)

Market Cycle Peak to Trough:

DJIA (1/14/00 - 9/21/01) -29.8%
S&P (3/24/00 - 9/21/01) -36.8%
SPY (3/24/00 - 9/21/01) -35.3%
VTSMX (3/24/00 - 9/21/01) -38.2
Nas (3/10/00 - 9/21/01) -71.8%
QQQ (3/24/00 - 9/21/01) -76.1%
___________________________

Index returns are price change only, ETFs and mutual funds including divs/distributions. Returns not guaranteed as to accuracy -- relying on unaudited third-party sources (may have missed a dividend or two, which would understate returns).

-- posted by Rande

Top 1965. Oct 12, 2001 5:14 PM

» JenL_2 - Re: The Latest -- 10/12/01

In response to message posted by Rande:

To illustrate:

<img src="http://chart.neural.com/servlet/GIFChart..." width=500 height=350>
VTSMX, VFINX, VEXMX Comparison 5 YR Chart

<img src="http://chart.neural.com/servlet/GIFChart..." width=500 height=350>
3 YR Chart

<img src="http://chart.neural.com/servlet/GIFChart..." width=500 height=350>
1 YR Chart

<img src="http://pvcharts.quicken.com/bin/icenter...." width=470 height=250>
YTD Chart

…..Jen

-- posted by JenL_2

Top 1966. Oct 13, 2001 6:30 AM

» lcha - Re: Re: As Earnings Plunge, the Market's P/E Ratio Sets a Recor

In response to message posted by Rande:

What % of my asset allocation should I devote to a hardened steel case? It might be difficult for me to track as Quicken does not have a hardened steel case asset catagory. Must have been an oversight to be fixed next release.

-- posted by lcha

Top 1967. Oct 13, 2001 7:39 AM

» mdorsey - Re: Re: As Earnings Plunge, the Market's P/E Ratio Sets a Recor

In response to message posted by Rande:

Nothing wrong with CDs or steel safes. Yes bonds may be near a top. But we know stocks can go a lot further down if historical P/E ratios repeat. So for now I will sit tight.

-- posted by mdorsey

Top 1968. Oct 13, 2001 8:49 AM

» Rande - Re: Re: Re: As Earnings Plunge, the Market's P/E Ratio Sets a R

In response to message posted by mdorsey:

Taking tongue out of cheek, there's nothing wrong with sitting tight. Everyone has their own level of risk tolerance and it's hard to argue with whatever gets you through the night.

-- posted by Rande

Top 1969. Oct 13, 2001 9:50 PM

» JenL_2 - BottomFishing Time?

This from 10/15 Barron's:

Not Just Dot.bombs

Solid stocks have been marked down 75% and more. Here's a shopping list

By Andrew Bary

Just how bad has the market decline of the past 18 months been? Morgan Stanley strategists Byron Wien and Steve Galbraith recently identified about 100 stocks that were down at least 75% from their highs before last week's rally and still had market valuations over $1 billion. The list included former highfliers such as Ciena, Corning, Amazon.com and Broadcom, that were off an astounding 90% or more from their peaks, as well as big companies such as WorldCom, EMC, Sun Microsystems, Gap and Hewlett-Packard that were down at least 75%.

The accompanying table (Mega Market Markdown) shows two dozen of the largest companies that made the 75% cut. Nearly all of them were profitable in the past 12 months, although many now are operating in the red, including Sun and Advanced Micro Devices.

Wien prefers to shop for bargains in this bin, rather than buy stocks in industries such as drugs, beverages and food, which have held up well in recent months. He selected a group of favorites from the larger list, including Immunex, Corning, Motorola, Oracle, Teradyne and Circuit City, which he felt could rise 50% in short order. Oracle already is up 40% from its low of 10.

Wien is betting on the success of U.S. military actions and domestic anti-terrorism measures. He also thinks fiscal and monetary stimuli will lift the economy out of recession by mid-2002. "The real opportunity is in those stocks that have been unduly depressed both before September 11 and afterwards," he says.

Most of the companies shown here have good balance sheets with ample cash and relatively little debt. Among the companies with substantial cash and investments are Apple Computer, Comverse Technology, Tellabs, Siebel Systems, BMC Software and Yahoo. Apple has $11 a share in net cash, not much less than its recent price of 17.

Yahoo, at 12, is up 50% from its late September low, but it does have nearly $3 a share in cash and another $3 a share from its stake in Yahoo Japan and the present value of tax-loss carryforwards. This effectively values the company's business at $6 a share, or $3.4 billion. Yahoo's outlook has worsened -- analysts now see slightly better than breakeven results in both 2002 and 2003 -- but the company does have strategic value and may prove successful in milking revenue from more of its 200 million users through premium services.

Comverse Technology is a new favorite of Ross Margolies, portfolio manager of the Salomon Brothers Capital Fund. He notes that Comverse, at 20, has around $7 a share in net cash and is operating solidly in the black. He reckons the stock is worth at least 30.

BMC's cash hoard of $4 a share may provide some support for its stock, which traded last week at 15. Tellabs, the telecommunications-equipment maker, and EMC both have over $2 a share in cash or investments on their balance sheets.

When looking at cash, don't forget to factor in debt. Amazon.com, for instance, at last count had $600 million in cash but over $2 billion in debt.

Book value may be a less useful measure now in identifying potential bargains because many companies' balance sheets are laden with goodwill stemming from acquisitions. JDS Uniphase, for instance, was deemed a "value" stock by Standard & Poor's earlier this year because it traded for a fraction of its stated book value. But JDSU since has written off over $45 billion of goodwill, slashing its book.

Hewlett-Packard, at 18, has yet to recover from a sharp fall following its poorly received announcement last month of a merger deal with Compaq. By several measures, H-P looks attractive. Its market value of $35 billion is appreciably less than its annual sales of $47 billion in the past 12 months. Hewlett's still-lucrative printer and ink business has come under pressure this year but arguably is worth H-P's current stock price. The rest of the company is operating in the red, however.

If the Compaq merger is scuttled by regulators or shareholders -- which is about an even-money bet, according to the arbitrage market -- H-P might benefit. Rejection of the deal could lead to the departure of chief executive Carly Fiorina, who is now viewed as a liability by some H-P investors. (Hewlett-Packard wouldn't comment on this.)

WorldCom shares, at 14, have held up well lately along with those of other big telecommunications companies as investors figure that the financial plight of upstart carriers will ultimately help more established companies.

WorldCom also has been helped by plans to cut back on capital expenditures in order to generate free cash flow next year. Telecom investors often have valued companies based on operating cash flow, typically defined as earnings before interest, taxes, depreciation and amortization, or EBITDA. But this ignores often sizable interest payment and capital expenditures. Given diminishing returns on capital and a renewed focus on balance-sheet health, even the largest telecom companies now are more focused on generating free cash flow.

WorldCom trades for eight times this year's pre-tax cash flow and for around 12 times next year's forecast profits. WorldCom's goal of 12%-15% annual revenue gains may be out of reach but its stock arguably is discounting lower growth already.

EMC and Sun -- once members of the supposedly invincible tech Fab Five along with Cisco Systems, Oracle and Nortel Networks -- both are struggling. Sun now is operating in the red and may not be profitable until the June 2002 quarter. EMC, the data-storage giant, is being hurt by competition, weak tech spending and lower profit margins. At 13, EMC still trades for around 70 times projected 2002 profits and for over three times sales. Some think EMC will find support in the high single digits.

Gap has fallen to 13, back where it stood in 1995, from a high of 53. The company may have lost its marketing magic, but it trades for 17 times projected 2002 profits. In a better environment, it could earn over $1 a share.

Advanced Micro Devices, at 10, has been hammered by rival Intel's price cuts on microprocessors and loss of market share. It earned almost $3 a share in 2000 and is expected to break even this year and lose money in 2002. Yet AMD may be near a bottom; it trades for less than one times sales and for under its book value ($11 a share), which often acted as a floor for the stock in the past. Intel, in contrast, trades for around six times sales. While they may be acting as if AMD were expendable, the big personal computer makers need AMD to prevent Intel from gaining a virtual monopoly in the microprocessor market. This suggests that AMD is apt to be a survivor.

Mega Market Markdowns

These 24 companies' stocks were off 75% or more from their peaks beforethe market rallied at midweekÐand have been profitable, unlike thedot.com disasters.

					Earnings		P/E*
Company Name	Symbol	Price Oct. 11	High Price	# off High	2001	2002	2001	2002	Market Val.(bil)	Trailing 12 mth. Sales(bil)
WorldCom	WCOM	13.71	64.5	-78.75	$1.05	$1.05	13.1	13.1	$39.6	$30.2
Hewlett-Packard	HWP	18.10	77.8	-76.72	0.57	1.04	31.8	17.4	35.2	47.0
Sun Microsystems	SUNW	9.78	64.7	-84.87	0.07	0.11	139.7	88.9	31.9	18.3
EMC	EMC	13.34	104.9	-87.29	0.18	0.18	74.1	74.1	29.4	9.3
Schwab (Charles)	SCH	11.63	51.7	-77.49	0.28	0.45	41.5	25.8	16.1	6.2
Immunex	IMNX	22.97	83.6	-72.53	0.29	0.30	79.2	76.6	12.3	0.9
Gap (The)	GPS	13.73	53.8	-74.46	0.55	0.79	25.0	17.4	11.8	14.4
Agilent Technologies	A	24.12	162.0	-85.11	-1.05	-0.60	NM	NM	11.1	10.1
Siebel Systems	SEBL	20.49	119.9	-82.91	0.50	0.57	41.0	35.9	9.3	2.2
Yahoo	YHOO	12.50	250.1	-95.00	0.05	0.11	250.0	113.6	7.1	1.0
Apple Computer	AAPL	17.74	75.2	-76.41	0.62	0.77	28.6	23.0	6.2	5.8
Applera-App Biosys	ABI	28.85	160.0	-81.97	0.87	1.06	33.2	27.2	6.1	1.6
BEA Systems	BEAS	15.18	89.5	-83.04	0.37	0.49	41.0	31.0	6.0	1.0
Tellabs	TLAB	13.92	77.3	-81.98	0.39	0.45	35.7	30.9	5.7	3.3
Juniper Networks	JNPR	16.64	244.5	-93.19	0.49	0.49	34.0	34.0	5.4	1.0
Brocade Comm Sys	BRCD	22.74	133.7	-82.99	0.19	0.37	119.7	61.5	5.2	0.5
Ciena	CIEN	15.24	151.0	-89.91	0.49	0.49	31.1	31.1	4.9	1.5
Teradyne	TER	26.06	115.4	-77.43	-0.34	-0.14	NM	NM	4.5	2.7
Comverse Tech	CMVT	19.90	124.8	-84.05	1.10	1.28	18.1	15.5	3.7	1.4
CompuWare	CPWR	10.15	40.0	-74.63	0.49	0.54	20.7	18.8	3.7	1.9
BMC Software	BMC	15.35	86.6	-82.28	0.45	0.58	34.1	26.5	3.7	1.5
Advanced Micro Dev	AMD	10.50	48.5	-78.35	0.15	-0.11	70.0	NM	3.6	4.6
Scientific-Atlanta	SFA	19.00	94.0	-79.79	1.38	1.57	13.8	12.1	3.1	2.5
Circuit City	CC	14.20	65.2	-78.22	0.60	0.94	23.7	15.1	2.9	9.9

*Per share; based on calendar year estimates - Source: Morgan Stanley

Subscribe to WSJ & Barron's Online @ http://www.wsj.com

Sorry the chart widens the margins a little and the links don't work. But here's a BottomFishing Stocks Watchlist

.....Jen

-- posted by JenL_2

Top 1970. Oct 14, 2001 7:30 AM

» Kirk - Re: BottomFishing Time?

In response to message posted by JenL_2:

Good article Jen. A couple of those stocks are in my newsletter as buys for similar reasons - great valuation and good outlook for the future.

As to column width. The trick for your article is to use MS Word and add a font size command to EVERY cell of the table. "font size=2" would probably work, but you need to experiment to find out what font size makes it work...

Thanks

-- posted by Kirk