Go to Jeff Salisbury LWGate Home Page.From: "Duke Miller" <dukemill@tampabay.rr.com>
Subject: RE: [CANSLIM] SYK
Date: Wed, 20 Mar 2002 13:09:55 -0500
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Katherine, et al:
While WON says to avoid considering PE's when buying a stock, one of his
sell rules (p117, 24 Essential Lessons) is to "consider" selling all or part
of a stock when its PE increases 130%? The example Katherine provides below
somewhat confirms this. To wit:
I buy a stock with a PE of 20. 46 is a 130% increase in the PE. Using
Katherine's example below, 2.25 * 20 = 45.
I personally lean to selling at a conservative 100% gain in PE! Can I see a
show of hands of people who are currently tussling with this issue at this
time?
Duke
-----Original Message-----
From: owner-canslim@lists.xmission.com
[mailto:owner-canslim@lists.xmission.com]On Behalf Of Katherine Malm
Sent: Wednesday, March 20, 2002 12:04 PM
To: canslim@lists.xmission.com
Subject: Re: [CANSLIM] SYK
Oops... "trailing PE for great growth stocks at breakout was 20"
----- Original Message -----
From: Katherine Malm
To: canslim@lists.xmission.com
Sent: Wednesday, March 20, 2002 10:56 AM
Subject: Re: [CANSLIM] SYK
Hi Charley,
WON's studies from 1953 to 1985 showed that the average trailing PE for
great growth stocks was 20. When they peaked, they averaged a trailing PE of
45, 2.25 the original levels. They then screened the best stocks going into
the market peak in March 2000 and found that the average PE when they broke
out was 44.8. When they peaked, they averaged a PE of 99.6, surprisingly,
2.2 times their PE on breakout. (Investor's Corner 6/9/00) His conclusion is
that this does give some range of expectation for PE expansion during the
stock's run.
One way I like to evaluate the industry is to look at the current PEs
relative to 5 year highs and lows. 5 years is often enough to catch at least
one and in some cases, more than one economic/market cycle. And I
wholeheartedly agree with you that comparing forward and/or trailing PEs of
a stock relative to its industry/direct competitors is a great way to see if
expectations are already built into the current price. I also like to
compare the stock's ROE against others in the same industry, as it gives a
measure of their relative ability to generate return on capital employed.
It would be great to see the results from your study.
Katherine
----- Original Message -----
From: Duke Miller
To: canslim@lists.xmission.com
Sent: Wednesday, March 20, 2002 10:35 AM
Subject: RE: [CANSLIM] SYK
Charley,
The results of your study would be very interesting to the group, I'm
sure.
Duke
-----Original Message-----
From: owner-canslim@lists.xmission.com
[mailto:owner-canslim@lists.xmission.com]On Behalf Of Chazmoore@aol.com
Sent: Wednesday, March 20, 2002 7:00 AM
To: canslim@lists.xmission.com
Subject: Re: [CANSLIM] SYK
Tom: A few months ago one of the TV "bears" commented that a stock
market recovery could not occur until the P/E ratio's fell significantly. In
other words, stock prices are too high, or earnings too low. He noted that
the S&P 500 Index P/E was (at the time) 28. Since I don't trust the S&P 500
Index averages I started to research the P/E ratio of Industry Groups, as
defined by IBD. I am far from complete but my initial findings indicate
that, with the exception of the technology sector, average P/E's really are
not that high. Credit card companies like Capital One Finance (COF), and
MBNA (KRB), have an average P/E of about 22; 8 points below the current S/P
Index average.
So, what is the point? I use this to determine if the stock P/E is
in line with it's own industry. It could also be used to determine a target
price to sell the stock in the future. While there are notable exceptions,
(CSCO, QCOM, JDSU), most stocks get downgraded when they hit P/E ratios
inconsistent with analyst projections, and this causes a price decline.
(Maybe I have more time than sense.)
Charley
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<DIV><SPAN class=3D777403417-20032002><FONT face=3DArial>Katherine, et=20
al:</FONT></SPAN></DIV>
<DIV><SPAN class=3D777403417-20032002><FONT =
face=3DArial></FONT></SPAN> </DIV>
<DIV><SPAN class=3D777403417-20032002><FONT face=3DArial>While WON says =
to=20
avoid considering PE's when buying a stock, one of his sell =
rules=20
(p117, 24 Essential Lessons) is to "consider" selling all or part =
of a=20
stock when its PE increases 130%? The example Katherine provides =
below=20
somewhat confirms this. To wit:</FONT></SPAN></DIV>
<DIV><SPAN class=3D777403417-20032002><FONT =
face=3DArial></FONT></SPAN> </DIV>
<DIV><SPAN class=3D777403417-20032002><FONT face=3DArial>I buy a stock =
with a=20
PE of 20. 46 is a 130% increase in the PE. Using Katherine's =
example=20
below, 2.25 * 20 =3D 45. </FONT></SPAN></DIV>
<DIV><SPAN class=3D777403417-20032002></SPAN> </DIV>
<DIV><SPAN class=3D777403417-20032002></SPAN><SPAN =
class=3D777403417-20032002><FONT=20
face=3DArial>I personally lean to selling at a conservative 100% =
gain in=20
PE! Can I see a show of hands of people who are =
currently tussling=20
with this issue at this time?</FONT></SPAN></DIV>
<DIV><SPAN class=3D777403417-20032002><FONT =
face=3DArial></FONT></SPAN> </DIV>
<DIV><SPAN class=3D777403417-20032002><FONT =
face=3DArial>Duke =20
</FONT></SPAN></DIV>
<BLOCKQUOTE dir=3Dltr=20
style=3D"PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #000000 2px =
solid; MARGIN-RIGHT: 0px">
<DIV class=3DOutlookMessageHeader dir=3Dltr align=3Dleft><FONT =
face=3DTahoma=20
size=3D2>-----Original Message-----<BR><B>From:</B>=20
owner-canslim@lists.xmission.com=20
[mailto:owner-canslim@lists.xmission.com]<B>On Behalf Of </B>Katherine =
Malm<BR><B>Sent:</B> Wednesday, March 20, 2002 12:04 PM<BR><B>To:</B>=20
canslim@lists.xmission.com<BR><B>Subject:</B> Re: [CANSLIM]=20
SYK<BR><BR></FONT></DIV>
<DIV>Oops... "trailing PE for great growth stocks <EM>at breakout</EM> =
was=20
20"</DIV>
<BLOCKQUOTE dir=3Dltr=20
style=3D"PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; =
BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px">
<DIV style=3D"FONT: 10pt arial">----- Original Message ----- </DIV>
<DIV=20
style=3D"BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: =
black"><B>From:</B>=20
<A title=3Dkmalm@earthlink.net =
href=3D"mailto:kmalm@earthlink.net">Katherine=20
Malm</A> </DIV>
<DIV style=3D"FONT: 10pt arial"><B>To:</B> <A =
title=3Dcanslim@lists.xmission.com=20
=
href=3D"mailto:canslim@lists.xmission.com">canslim@lists.xmission.com</A>=
=20
</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Sent:</B> Wednesday, March 20, =
2002 10:56=20
AM</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Subject:</B> Re: [CANSLIM] =
SYK</DIV>
<DIV><BR></DIV>
<DIV>Hi Charley,</DIV>
<DIV> </DIV>
<DIV>WON's studies from 1953 to 1985 showed that the average =
trailing PE for=20
great growth stocks was 20. When they peaked, they averaged a =
trailing PE of=20
45, 2.25 the original levels. They then screened the best stocks =
going into=20
the market peak in March 2000 and found that the average PE when =
they broke=20
out was 44.8. When they peaked, they averaged a PE of 99.6, =
surprisingly,=20
2.2 times their PE on breakout. (Investor's Corner 6/9/00) His =
conclusion is=20
that this does give some range of expectation for PE expansion =
during the=20
stock's run.</DIV>
<DIV> </DIV>
<DIV>One way I like to evaluate the industry is to look at the =
current PEs=20
relative to 5 year highs and lows. 5 years is often enough to catch =
at least=20
one and in some cases, more than one economic/market cycle. And I=20
wholeheartedly agree with you that comparing forward and/or trailing =
PEs of=20
a stock relative to its industry/direct competitors is a great way =
to see if=20
expectations are already built into the current price. I also like =
to=20
compare the stock's ROE against others in the same industry, as it =
gives a=20
measure of their relative ability to generate return on capital=20
employed.</DIV>
<DIV> </DIV>
<DIV>It would be great to see the results from your study.</DIV>
<DIV> </DIV>
<DIV>Katherine</DIV>
<BLOCKQUOTE dir=3Dltr=20
style=3D"PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; =
BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px">
<DIV style=3D"FONT: 10pt arial">----- Original Message ----- =
</DIV>
<DIV=20
style=3D"BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: =
black"><B>From:</B>=20
<A title=3Ddukemill@tampabay.rr.com=20
href=3D"mailto:dukemill@tampabay.rr.com">Duke Miller</A> </DIV>
<DIV style=3D"FONT: 10pt arial"><B>To:</B> <A=20
title=3Dcanslim@lists.xmission.com=20
=
href=3D"mailto:canslim@lists.xmission.com">canslim@lists.xmission.com</A>=
=20
</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Sent:</B> Wednesday, March 20, =
2002 10:35=20
AM</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Subject:</B> RE: [CANSLIM] =
SYK</DIV>
<DIV><BR></DIV>
<DIV><SPAN class=3D638063516-20032002><FONT=20
face=3DArial>Charley,</FONT></SPAN></DIV>
<DIV><SPAN class=3D638063516-20032002><FONT=20
face=3DArial></FONT></SPAN> </DIV>
<DIV><SPAN class=3D638063516-20032002><FONT face=3DArial>The =
results of your=20
study would be very interesting to the group, I'm=20
sure.</FONT></SPAN></DIV>
<DIV><SPAN class=3D638063516-20032002><FONT=20
face=3DArial></FONT></SPAN> </DIV>
<DIV><SPAN class=3D638063516-20032002><FONT=20
face=3DArial>Duke</FONT></SPAN></DIV>
<BLOCKQUOTE=20
style=3D"PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #000000 =
2px solid">
<DIV class=3DOutlookMessageHeader dir=3Dltr align=3Dleft><FONT =
face=3DTahoma=20
size=3D2>-----Original Message-----<BR><B>From:</B> <A=20
=
href=3D"mailto:owner-canslim@lists.xmission.com">owner-canslim@lists.xmis=
sion.com</A>=20
[mailto:owner-canslim@lists.xmission.com]<B>On Behalf Of </B><A=20
=
href=3D"mailto:Chazmoore@aol.com">Chazmoore@aol.com</A><BR><B>Sent:</B>=20
Wednesday, March 20, 2002 7:00 AM<BR><B>To:</B> <A=20
=
href=3D"mailto:canslim@lists.xmission.com">canslim@lists.xmission.com</A>=
<BR><B>Subject:</B>=20
Re: [CANSLIM] SYK<BR><BR></FONT></DIV><FONT =
face=3Darial,helvetica><FONT=20
size=3D2>Tom: A few months ago one of the TV "bears" commented =
that a=20
stock market recovery could not occur until the P/E ratio's fell =
significantly. In other words, stock prices are too high, or =
earnings=20
too low. He noted that the S&P 500 Index P/E was (at the =
time) 28.=20
Since I don't trust the S&P 500 Index averages I started to =
research=20
the P/E ratio of Industry Groups, as defined by IBD. I am far =
from=20
complete but my initial findings indicate that, with the =
exception of=20
the technology sector, average P/E's really are not that high. =
Credit=20
card companies like Capital One Finance (COF), and MBNA (KRB), =
have an=20
average P/E of about 22; 8 points below the current S/P Index =
average.=20
<BR>So, what is the point? I use this to determine if the stock =
P/E is=20
in line with it's own industry. It could also be used to =
determine a=20
target price to sell the stock in the future. While there are =
notable=20
exceptions, (CSCO, QCOM, JDSU), most stocks get downgraded when =
they hit=20
P/E ratios inconsistent with analyst projections, and this =
causes a=20
price decline. <BR>(Maybe I have more time than sense.) =
<BR><BR>Charley=20
=
<BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR><BR></BLOCKQUOTE></BL=
OCKQUOTE></BLOCKQUOTE></BLOCKQUOTE></FONT></FONT></BODY></HTML>
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