COMMENTARY -- Already factored in.
That's the bottom line for stocks at this point. Short of the apocalypse or at least a warning from Cisco Systems (Nasdaq: CSCO), the market simply will not fall much beyond its recent lows.
The surprise wasn't that Intel (Nasdaq: INTC) warned, but that it didn't happen until this week. Investors didn't bother waiting for Intel to confirm everyone's suspicions; INTC shares have been nosediving since September:
Wall Street has expected bad news for awhile, and Intel's stock price reflected that. The bad news was, you guessed it, already factored in. Thus, INTC shares rallied today, as did the rest of the market.
Skeptics would argue that Intel remains an overvalued stock, particularly given the fact that demand problems in its business may not go away soon, and competition from Advanced Micro Devices (NYSE: AMD) and communications chipmakers is intensifying. For that matter, many argue that technology issues in general remain too expensive.
In some cases they have a point. Siebel Systems (Nasdaq: SEBL) has been a great company so far, but does any stock deserve to trade at 158 times estimated earnings for the 12 months?
Forward earnings are what you want to use for comparison, since the "Stocks Still Cost Too Much" argument hinges on the expectation of slowing growth in the tech industry. Presumably, analysts have factored in potential slumps in light of the rash of preannouncements seen in recent weeks.
And based on those future expectations, you can see, the Siebels of the world notwithstanding, plenty of popular tech stocks remain not just cheap, but unbelievably low.
Consider some examples as of 11:50 a.m. this morning.
Intel, Microsoft (Nasdaq: MSFT) and Applied Materials (Nasdaq: AMAT) traded at forward multiples of 20, 28 and 15 (Fifteen!). Wal-Mart Stores (NYSE: WMT) sat at 35. General Electric (NYSE: GE) was valued at 38 times forward earnings. Home Depot (NYSE: HD) -- a company that recently warned of disappointing results -- hung around at 35, Walt Disney Group (NYSE: WD) carried a multiple of 48 (Love to hear an explanation for that one).
Even if technology growth slows, which company do you think will post better results next year, Disney or Microsoft? Applied Materials, slated for 18 percent EPS growth in a slowing semiconductor environment? Or Wal-Mart, looking at 15 percent earnings growth in a retail world that, if anything, ought to be more benign now that e-tailing mania is subsiding.
Tech stocks are only overvalued if the entire market is overvalued, and at its current level, the only way for the market to be overvalued is if we hit a full-blown recession. Alan Greenspan may have tapped the economic brakes, but we're far from the kind of slowdown last seen in late 1991.
The alternatives for cash surely can't look all that appealing compared to stocks. Let's see ... buy an "expensive" Oracle stock at 49 times earnings, or go into government bonds just in time for a Republican president who promises to cut taxes, which implies less debt reduction.
I suppose there's always the cookie jar and the space under the mattress.
Given the choices, stocks ought to look more appealing than ever after their losses this year. And within the equity realm, many tech issues stand out compared to other stocks.
So don't be surprised that the market is bouncing back today. All that money sitting on the sidelines can get back on the field without fear, because Intel, a bellwether of bellwethers, has finally unleashed its expected disappointment. We can breathe again. 22GO>