Stocking up time -AMD?
As a result of PC sales slowdowns, stocks have fallen in these areas. Nearly all companies associated with these businesses have fallen. CPU manufacturers AMD and Intel have fallen greatly as well as computer makers Dell, Gateway, Compaq, and Sun Microsystems.
Many investors are taking the current situation and extending it into the future as often happens and the stocks have been hammered down. Of course the current situation does not predict the future situation. The growth rates today have slowed as compared to what they were in the past, but the growth rates are still very attractive as compared to other industries.
The PC industry is still a very fast growing industry and has many profitable players. Nearly every three or four years, people must purchase new computers to continue to use the latest software. As software becomes easier to use, the code becomes larger and larger making hardware demands greater. This will not change.
Computer sales are still expected to remain in double digit growth rates and companies such as Dell, and Gateway have had double digit return on equity rates.
Benjamin Graham, one the most recognizable value investors had a strategy of not paying more than a certain amount for a given stock. He determined this by taking PE ratio multiplying by book value ratio. He did not want to pay more than 22.5. This generally eliminates most fast-growing companies, and almost all quality stocks, but today, good stocks meeting Benjamin Grahams criteria are becoming available.
AMD for instance is selling for a PE of 6.49 and a price/book of 1.81 which means that the ratio is about 14 which meets Benjamin Grahams criteria.
Gateway is selling with PE of 10.95 and Price/book of 2.24 which almost meets Mr. Grahams criteria.
Of course these are just guides, but as we all know, buying low and selling high is the goal, and many are now closer to low than high.
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