Up and Down Wall Street
.
SATURDAY, MAY 26, 2012
.
Till the Cows Come Home
.
By ALAN ABELSON
.
The stock market can't quite bring itself to take a real flop that might clear the way for a decent bounce.
It figures. With the bulls absorbing more than the occasional pounding by
this fickle and footloose stock market, it was inevitable that otherwise
contented cows would take a break from being milked and swatting at swarms of
pesky flies with their swishy tails and wander onto the streets udderly incensed
at seeing their mates treated so rudely.
So it was last week that, reports the A.P., a mooing herd invaded Boxford, Mass., a nicely wooded town some 24 miles from Boston, and spotted a small but jolly afternoon get-together of youths in a backyard, scaring the living daylights out of them. Hell hath no wrath like a cow whose significant other has been mistreated, and the snorting bovines, blood in their eyes, sent the partygoers scrambling for cover.
.
The thundering herd proceeded to knock over the open cans of beer the humans in their frantic escape had thoughtlessly left unattended on a picnic table and proceeded to slurp every last drop of the tiny puddles of Bud. They finally were induced by their owner to return to their comfy barn, a bit woozy no doubt, but none the worse for wear.
We might suggest that should you find yourself being intently gazed at by a stern-looking cow, the thing to do is to smile real friendly-like and try to convince her that you've always been rather bullish when it comes to investing, citing the fact that the market goes up 70% of the time. If that doesn't work, don't panic, just keep smiling, hum a few bars of "Till the Cows Come Home," calmly turn around, take a deep breath, and rush like mad to shimmy up the nearest tree.
.
We only wish there were a similarly simple way to deal with a spooked stock market that can't quite bring itself to take a real flop that might clear the way at least for a decent bounce, but seems to have completely forgotten that it's supposed to climb a wall of worry. On that score, gosh knows, the air is thick with concerns.
Not the least of these is the parlous state of much of the Old World's economy. The 17 nations that make up the European Monetary Union, led by Germany and France, are better at jaw-jawing than problem-solving and seem in serious danger of running out of summits at which to hold their fruitless parlays. They held one last week that predictably was, as far as results go, pretty much a dud.
.
Apart from a lot of moaning and wailing, their main accomplishment so far has been to drive the euro to a 22-month low. To be fair, the EMU's panjandrums soon may be able to add to their slender list of achievements Greece's exit from their ranks.
.
One of our savvy readers whose bon mots we've passed along from time to time, Matthew Menken, predicts that "Merkel will never blink." He cites the German chancellor's Weltanschauung and conjectures that she feels in effect that "Italy and Spain would be better off as German colonies, and Greece is altogether expendable."
.
If only Matthew would learn not to mince his words. Our own view has been a trifle more conciliatory—when push comes to shove, the European Union will summon up enough imagination to avoid or at least significantly postpone dismemberment. But we must confess our conviction on that score has begun to wane, and it's always possible that the leaders (for want of a better inoffensive word) will go the brink once too often.
.
Perversely, what give us fresh hope is that our own Treasury Department on Friday recognized what has become common knowledge, namely that "the deeper crisis now facing Europe is a significant risk to the U.S. outlook as our recovery remains vulnerable to events abroad." Boy, there's just no keeping a secret from Tim Geithner. Still, when even the Treasury discovers that Europe has its troubles, the worst just might be over.
Moreover, as Ashraf Laidi, of City Index Ltd., points out, speculative shorts on the euro in the currency-futures markets have hit an all-time high. A dyed-in-the-wool contrarian would certainly be tempted to see that as bullish for the euro and possibly, by implication, that perhaps the Continent isn't ready to go to hades in handbarrow.
.
Just don't bet on it. The best advice we can cook up is keep your powder dry until you see how it all works out. You shouldn't have long to wait.
.
MARK HULBERT, AMONG HIS other chores, is a regular contributor to our sister publication, The Wall Street Journal. Since some one whispered to us in the strictest confidence last week that Facebook's
.
So, you might well wonder, what does Mark Hulbert, who puts out something called the Hulbert Financial Digest (we always marvel at the ingenious names people come up with) have to do with the Facebook fiasco? The answer is nothing. But Mark, a gentleman as well as a scholar, is an old hand at sizing up companies and their securities, and his analysis is unfailingly worthy of notice.
.
So much for a brief explanatory note for why, reluctant as we are to join the trashing crowd, we thought Mark's piece in case you missed it in the Journal's MarketWatch feature an especially intriguing approach to determining where the shares of a new issue, in this case Facebook (ticker: FB), should sell.
.
As he says, a recent study of IPOs by Jay Ritter, a finance professor at the University of Florida, and two researchers at the University of California (Davis), Professor Martin Kenney and Donald Patton, make that job a lot easier.
.
They found that revenue growth of the average company taking the plunge into public ownership between 1996 and 2010 grew by 212% in the five years following their IPO. Mark reckons that assuming Facebook repeats that pattern, annual revenues five years hence should weigh in at a not exactly shabby $11.58 billion.
.
Facebook, he notes, is often compared to Google
.
And if you assume that the company's five-year return is equal to the stock market's long-term average return of 11%, that gives you a less-than-gangbuster price of only $13.80. Which prompts Mark to utter a "Double Ouch."
.
Just for the heck of it, switch your valuation yardstick from sales or returns and instead use earnings. The results, alas, aren't anything to shout whoopee about, either. Assuming profit margins stay around the same level as they are currently, and assuming, too, that the P/E ratio will match that sported by Google last we checked, according to Mark's calculations Facebook's shares should be changing hands at $16.66 each (that merits another "Ouch!" we might interject).
.
It's always possible, of course, for Facebook's revenues and earnings, Mark concedes, to grow more vigorously than the run-of-the-mill IPO did in the 1996-2010 stretch.
.
But it pays to keep in mind that Facebook already is a corporate heavyweight—bigger in fact than all but 47 other publicly traded companies. It'll really have to sweat to grow not just faster, but a lot faster, in the next five years.
.
And, Mark adds, his "back-of-the-envelope calculations" could very well be too optimistic rather than too pessimistic. Anyway he looks at it, Facebook is overpriced. And always, as we said, the gentleman, he doesn't even mention all the baggage it totes around in the form of lawsuits, regulatory investigations, and those screechy sounds emanating from Congress.
.
0 comments:
Publicar un comentario