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Ted Stamas
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A self taught investor with a degree in business administration from Ithaca College in Ithaca, New York. Been investing over 20 years, and writing in various formats for 30 years. Primarily investing in technology, focusing on wireless sector. Trade infrequently.
My blog:
The Ithaca Experiment
  • Let's See What's on the Menu 0 comments
    Aug 12, 2011 6:19 AM
    If you've had a ringside seat to the market the past few days, your head is probably spinning. While many traders have been jockeying for pole position in anticipation of a significant rebound, I let the world take a few spins this past week to examine most of the securities I've analyzed since January. Although I like a lot of what I see where valuations are concerned, there is still room to go on the downside before I begin to start buying. The reason being is that I believe that companies will begin to contract, not expand earnings as the government debt crisis unfolds at home and abroad.

    The table below is comprised of the equities I've written about except for Apple (AAPL), Netflix (NFLX), Informatica (INFA) and American Superconductor (AMSC). The reason for their omissions, is that I am not interested in buying them at a later date for various reasons. The data in the table was obtained from two sources, Seeking Alpha for the Forward P/E Ratios and Yahoo Finance for the projected five year compound annual growth rate.

    SYMBOL FORWARD P/E 5 YEAR CAGR PEG RATIO
    AKAM 18.4 15.28% 1.2
    APKT 53.3 21.87% 2.44
    ARUN 801.7 27.12% 29.5
    ATHN 85.3 33.53% 2.5
    CELG 16.1 24.35% 0.66
    CRM 530.2 26.56% 20
    DLB 11.1 15.5% 0.7
    FFIV 25.8 22.71% 1.3
    HOLX 12.1 9.2% 1.3
    ILMN 34.6 27.8% 1.27
    ITRI 8.4 9.65% 0.87
    NTAP 18.3 18.21% 1.0
    NUAN 17.9 13.0% 1.38
    NVDA 11.4 15.17% 0.75
    PAY 21.9 22.5 0.97
    SEAC 11.9 46% 0.26
    STP 6.4 6.78% 0.94
    TIBX 30.3 14.5% 2.09
    UTHR 18.2 43.52% 0.42
    VECO 6.8 13.33% 0.51
    VMW 58.2 25.28% 2.3

    I did a double take when I saw the P/E Ratios on both Aruba Networks (ARUN) and SalesForce.com (CRM), so I reconfirmed their valuations on Yahoo Finance. They're in the ballpark with the Seeking Alpha metrics which means they've been a house of fire of late even though they're off their 52 week highs. I like the business models for both securities, but they have pushed it to the limits and need to come back down to earth.

    Other equities in the cloud computing sector seem overvalued, too. Acme Packet (APKT), Athena Health (ATHN), Tibco Software (TIBX) and VMware (VMW) all have PEG ratios over 2, which translates into very expensive stocks. My preference for buying equities is the lower the PEG Rate, the better, but sometimes you get caught in a value trap. I don't believe any of the other stocks on this list will be value traps because the growth stories behind the companies are very compelling. That said, I still believe that we are in a period when P/E ratios will contract, not expand due to the consumer and governmental debt problems countries around the world are facing.

    To top things off, I am including a table of these same securities and their performances since my original articles. At the time I wrote those articles, the prevailing wisdom was that they could do no wrong and would only trend higher.

    SYMBOL ORIGINAL PRICE ORIGINAL DATE LAST PRICE % GAIN/LOSS
    APKT 75 4/7/11 52.33 -30.23
    ARUN 28 6/1/11 22.25 -20.54
    ATHN 45 3/5/11 52.12 15.82
    CELG 53 2/16/11 53.65 1.23
    CRM 140 2/17/11 134.35 -3.89
    DLB 48 4/2/11 32.70 -31.87
    FFIV 95 4/2/11 76.12 -19.87
    HOLX 20.50 4/18/11 15.82 -22.83
    ILMN 70 3/1/11 52.47 -25.04
    ITRI 48 6/10/11 39.38 -17.96
    NTAP 54 5/15/11 42.68 -20.96
    NUAN 18 3/9/11 17.93 -0.39
    NVDA 18 5/23/11 13.41 -25.5
    PAY 55 4/8/11 36.36 -33.89
    SEAC 9 3/21/11 7.66 -14.89
    STP 8 3/21/11 6.47 -19.13
    TIBX 30 5/10/11 23.66 -21.13
    UTHR 65 3/23/11 51.33 -21.05
    VECO 52 2/23/11 37.09 -28.67
    VMW 93 5/8/11 90.25 -2.96

    I rest my case.



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: Am short the market with inverse ETFs
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