Tuesday, October 23, 2007

Back to Mindless Buying...

Pardon me if I sound a little bitter, because I am on the sidelines, missing out on the spectacular gains.

But the enduring bull run of the hot tech stocks like BIDU, GOOG, RIMM, AMZN, AAPL, and others truly baffles me.

Apple gets some leeway, because it did just report excellent earnings, and it seems to be the most fundimentally-solid out of the above mentioned companies. However, it was one of the laggards of the group today, up ONLY 7%. (Of course there's nothing to prove this next claim, but if my father is reading this he could agree: I actually thought Apple would blow out the quarter on good Mac numbers. In my opinion, that's going to be the the main (or only) thing that will allow them to keep up their hypergrowth.)

Google was up $25 to $675 on no real substantial news; it looks to blow through $700 easily. The momentum is simply unstoppable.

Amazon was up 10% today purely in speculation of good earnings. With at trailing P/E of 140 and a forward P/E of 70, the earnings are going to have to be unbelievably good to merit the gains.

And best of all, BIDU and RIMM were both up a solid 10% on no major news. I guess if you have a four-letter symbol and are either selling smartphones, a search engine, or have a website, the value of your shares will ALWAYS be too low at the current prices.

Meanwhile, there's companies like NutriSystem (NTRI), which trades at a current P/E of 9 and a forward P/E of 8, that are getting no love during the rally around them. Sun Microsystems (JAVA), a reliable producer of tangible software and goods, has been flat lately as the gains of the intellectual-tech companies are halfway to the moon.

Whenever people write articles like these, Techlovers will always reply that this is what people said when Google was at $160 and after AAPL and RIMM had merely doubled (both are up much more since then).

However, people were obviously still buying tech stocks at the height of the bubble in 1999 and 2000. There are huge difference between then and now; the above-mentioned companies all ARE making money, while 7 years ago, many techies were not. However, the above companies will not all grow at 30% or 50% indefinitely; if Apple can't think up the next "IT" product, or if Google can't enter a market besides search, growth rates will surely fall, and P/Es should too, back down to earthly levels.

Just think: If Amazon's forward P/E fell to the level of Apple's - a generous 30-35x, it would be trading at half of its current price.

3 comments:

DIP MASTER said...

we just did this with RIMM, instead of complaining about the stocks, get in on the dip.

Buy on the dip.

find a good stock, wait for a dip, buy on the dip, then... tada!

new highs , take some profits.

www.BuyOnTheDip.com

DIP MASTER said...

and we like your site!

can you give us a stock tip, what is the next hot DRUG/health stock?

Stephen said...

Nutrisystems: Up 10% since my post. :)

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