Go to Jeff Salisbury LWGate Home Page.From: "Tom Worley" <stkguru@bellsouth.net>
Subject: Re: [CANSLIM] SYK
Date: Wed, 20 Mar 2002 18:23:29 -0500
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I usually don't give trailing PE any consideration, and only calculate =
projected PE when the forecasts are especially high, and trailing PE =
appears high. Main thing for me is that high trailing PE usually means =
at least one or more of several things:
high expectations
sharp drop in earnings in past 4 qtrs
weak earnings (or a non recurring spike) suddenly growing rapidly
The second and third items require extra investigation
I do use 1.5X the 50dma, and 2X the 200dma, for setting an initial =
target price when I buy a stock. This doesn't work well with a stock =
like SMD, where recent earnings / sales growth has jacked the price up, =
and the 200dma has yet to "catch up". But I also reevaluate my "target" =
using these 50/200dma formulas when I get to a point where I am =
considering selling part or all of the position. This was one of the =
"tools" that allowed me to stay in EPIQ long enough to get multi-hundred =
percent returns. I also generally do not buy a stock unless I can =
vocalize a reason why I think the stock can double in about one year.
As an example, this week I unloaded half my position in LB in both my =
IRA and VR Fund, because I didn't like the latest quarterly results, and =
now realize that they regularly carry about a nine month backlog of =
orders. The backlog was what attracted me to the company in the first =
place, and led me to believe that in a slow economy they could shine by =
sharp increases in sales and earnings. So now I settled for a 50% gain =
in just under a year, since my original reasoning is no longer valid. =
Once I invest the cash from selling all of MDII and half of LB, I will =
be looking at the other half of LB when I find something new. My =
original target for LB was $6 a year ago, but the now stagnant earnings =
and sales on a sequential basis make me doubt achieving that level, much =
less the 50/200dma targets.
Tom Worley
stkguru@bellsouth.net
AIM: TexWorley
- ----- Original Message -----=20
From: Katherine Malm=20
To: canslim@lists.xmission.com=20
Sent: Wednesday, March 20, 2002 1:17 PM
Subject: Re: [CANSLIM] SYK
Duke,
I don't worry about things like PE expansion and/or price as % above the =
base/50/200 day moving averages unless the price/volume action itself is =
also triggering a sell rule. I interpret the word "consider" in WON's =
guidelines merely as "yellow warning flags" not sell rules in and of =
themselves. If the money invested is better utilized elsewhere, then I =
might take profits and reinvest in another stock, but that's the only =
reason.
Katherine
----- Original Message -----=20
From: Duke Miller=20
To: canslim@lists.xmission.com=20
Sent: Wednesday, March 20, 2002 12:09 PM
Subject: RE: [CANSLIM] SYK
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 =3D 45. =20
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 =20
-----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 -----=20
From: Katherine Malm=20
To: canslim@lists.xmission.com=20
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 -----=20
From: Duke Miller=20
To: canslim@lists.xmission.com=20
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.=20
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.=20
(Maybe I have more time than sense.)=20
Charley=20
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<DIV><FONT face=3DArial>I usually don't give trailing PE any =
consideration, and=20
only calculate projected PE when the forecasts are especially high, and =
trailing=20
PE appears high. Main thing for me is that high trailing PE usually =
means at=20
least one or more of several things:</FONT></DIV>
<DIV><FONT face=3DArial></FONT> </DIV>
<DIV><FONT face=3DArial>high expectations</FONT></DIV>
<DIV><FONT face=3DArial>sharp drop in earnings in past 4 =
qtrs</FONT></DIV>
<DIV><FONT face=3DArial>weak earnings (or a non recurring spike) =
suddenly growing=20
rapidly</FONT></DIV>
<DIV><FONT face=3DArial></FONT> </DIV>
<DIV><FONT face=3DArial>The second and third items require extra=20
investigation</FONT></DIV>
<DIV><FONT face=3DArial></FONT> </DIV>
<DIV><FONT face=3DArial>I do use 1.5X the 50dma, and 2X the 200dma, for =
setting an=20
initial target price when I buy a stock. This doesn't work well with a =
stock=20
like SMD, where recent earnings / sales growth has jacked the price up, =
and the=20
200dma has yet to "catch up". But I also reevaluate my "target" using =
these=20
50/200dma formulas when I get to a point where I am considering selling =
part or=20
all of the position. This was one of the "tools" that allowed me to stay =
in EPIQ=20
long enough to get multi-hundred percent returns. I also generally do =
not buy a=20
stock unless I can vocalize a reason why I think the stock can double in =
about=20
one year.</FONT></DIV>
<DIV><FONT face=3DArial></FONT> </DIV>
<DIV><FONT face=3DArial>As an example, this week I unloaded half my =
position in LB=20
in both my IRA and VR Fund, because I didn't like the latest quarterly =
results,=20
and now realize that they regularly carry about a nine month backlog of =
orders.=20
The backlog was what attracted me to the company in the first place, and =
led me=20
to believe that in a slow economy they could shine by sharp increases in =
sales=20
and earnings. So now I settled for a 50% gain in just under a year, =
since my=20
original reasoning is no longer valid. Once I invest the cash from =
selling all=20
of MDII and half of LB, I will be looking at the other half of LB when I =
find=20
something new. My original target for LB was $6 a year ago, but the now =
stagnant=20
earnings and sales on a sequential basis make me doubt achieving that =
level,=20
much less the 50/200dma targets.</FONT></DIV>
<DIV><FONT face=3DArial></FONT> </DIV>
<DIV>Tom Worley<BR><A=20
href=3D"mailto:stkguru@bellsouth.net">stkguru@bellsouth.net</A><BR>AIM:=20
TexWorley</DIV>
<DIV style=3D"FONT: 10pt arial">----- Original Message -----=20
<DIV style=3D"BACKGROUND: #e4e4e4; font-color: black"><B>From:</B> <A=20
title=3Dkmalm@earthlink.net =
href=3D"mailto:kmalm@earthlink.net">Katherine Malm</A>=20
</DIV>
<DIV><B>To:</B> <A title=3Dcanslim@lists.xmission.com=20
href=3D"mailto:canslim@lists.xmission.com">canslim@lists.xmission.com</A>=
</DIV>
<DIV><B>Sent:</B> Wednesday, March 20, 2002 1:17 PM</DIV>
<DIV><B>Subject:</B> Re: [CANSLIM] SYK</DIV></DIV>
<DIV><BR></DIV>
<DIV>Duke,</DIV>
<DIV> </DIV>
<DIV>I don't worry about things like PE expansion and/or price as % =
above the=20
base/50/200 day moving averages unless the price/volume action itself is =
also=20
triggering a sell rule. I interpret the word "consider" in WON's =
guidelines=20
merely as "yellow warning flags" not sell rules in and of themselves. If =
the=20
money invested is better utilized elsewhere, then I might take profits =
and=20
reinvest in another stock, but that's the only reason.</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 =
href=3D"mailto:dukemill@tampabay.rr.com">Duke=20
Miller</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>=
</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Sent:</B> Wednesday, March 20, 2002 =
12:09=20
PM</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Subject:</B> RE: [CANSLIM] =
SYK</DIV>
<DIV><BR></DIV>
<DIV><SPAN class=3D777403417-20032002><FONT face=3DArial>Katherine, et =
al:</FONT></SPAN></DIV>
<DIV><SPAN class=3D777403417-20032002><FONT=20
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=20
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=20
example below, 2.25 * 20 =3D 45. </FONT></SPAN></DIV>
<DIV><SPAN class=3D777403417-20032002></SPAN> </DIV>
<DIV><SPAN class=3D777403417-20032002></SPAN><SPAN=20
class=3D777403417-20032002><FONT face=3DArial>I personally lean to =
selling at=20
a conservative 100% gain in PE! Can I see a show of hands =
of people=20
who are currently tussling with this issue at this=20
time?</FONT></SPAN></DIV>
<DIV><SPAN class=3D777403417-20032002><FONT=20
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=20
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=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 10:56=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=20
for great growth stocks was 20. When they peaked, they averaged a =
trailing=20
PE of 45, 2.25 the original levels. They then screened the best =
stocks=20
going into the market peak in March 2000 and found that the =
average PE=20
when they broke out was 44.8. When they peaked, they averaged a PE =
of=20
99.6, surprisingly, 2.2 times their PE on breakout. (Investor's =
Corner=20
6/9/00) His conclusion is that this does give some range of =
expectation=20
for PE expansion during the 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=20
least 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=20
of a stock relative to its industry/direct competitors is a great =
way to=20
see if expectations are already built into the current price. I =
also like=20
to compare the stock's ROE against others in the same industry, as =
it=20
gives a 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=20
10:35 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=20
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=20
research the P/E ratio of Industry Groups, as defined by IBD. =
I am far=20
from complete but my initial findings indicate that, with the=20
exception of the technology sector, average P/E's really are =
not that=20
high. Credit card companies like Capital One Finance (COF), =
and MBNA=20
(KRB), have an average P/E of about 22; 8 points below the =
current S/P=20
Index average. <BR>So, what is the point? I use this to =
determine if=20
the stock P/E is in line with it's own industry. It could also =
be used=20
to determine a target price to sell the stock in the future. =
While=20
there are notable exceptions, (CSCO, QCOM, JDSU), most stocks =
get=20
downgraded when they hit P/E ratios inconsistent with analyst=20
projections, and this causes a price decline. <BR>(Maybe I =
have more=20
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></BLOCKQUOTE></FONT></FONT></BODY></HT=
ML>
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