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Very Attractive Buys in Chris Davis' Portfolio

January 09, 2012 | About:


Tonyg34 - 2 years ago
If I may start a tangent:

That GOOG FAST graph shows an inherent flaw in the pricing model. Yeah the black line is below the blue and orange lines. That's because the blue line represents a 40 PE multiple. You might be using the longest available moving day averages, but its still charting (technical analysis) without any consideration toward where those future earnings are coming from or how the company may sustain its historic growth rate. Do you really think GOOG "deserves" to trade at 40 times earnings just b/c of its past performance?

By all means it is not only possible but in this instance quite likely that the market is discounting the future earnings of all the companies listed, but the idea of an earnings justified yield implies a level of predictability of earnings that is simply not possible (with a bank that won't see earnings on interest income at historic norms for a long time, or a broken tech stock like HPQ, or tech titan that lost its edge to a new technology, e.g. INTC and ARMH). The reason HPQ traded near earnings justified levels in 2010 and then dropped is b/c its future earnings are impaired. So basically, every stock (relative to its cap size and liquidity) trades at the markets best guess of its "earnings justified yield".

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