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No. of Recommendations: 1
I have been comparing QCOM and JDSU. Below is a simple comparison of what the share prices may be in 5 years.

QCOM earning FY2000(sept) $1.07, 42% long term growth (from fool.com)

Earnings in 5 years $1.07 * 1.42^5 = $6.18
Share price (with TTM PE=60); 6.18*50 = $308
Gain; 308-61/61 * 100% = 405% Gain

JDSU earnings FY2000(june) $0.39, 48% long term growth
(from fool.com)

Earnings in 5 years $0.39 * 1.48^5 = $2.77
Share price (with TTM PE=70); 2.77*70 = $194
Gain; 194-114/114 * 100 = 70% Gain

I know the analysts estimates may be very wrong, and it is not possible to know what PE the stocks will have in 5 years (note I used a PE of 60 for QCOM and 70 for JDSU), but given this and the above information I have a strong desire to sell my JDSU shares (only a 20% gain) and buy more QCOM. QCOM in the 50's seems to be a no-brainer, unless cross licensing of W-CDMA wipes out most of their royalties.

Please let me know what you think.

cheers,
Bart
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Earnings in 5 years $1.07 * 1.42^5 = $6.18
Share price (with TTM PE=60); 6.18*50 = $308
Gain; 308-61/61 * 100% = 405% Gain

JDSU earnings FY2000(june) $0.39, 48% long term growth
from fool.com)

Earnings in 5 years $0.39 * 1.48^5 = $2.77
Share price (with TTM PE=70); 2.77*70 = $194
Gain; 194-114/114 * 100 = 70% Gain


Bart-

Your growth analysis of JDSU is probably underdone. Then again the same might be said for QCOM. The uncertainty for me hanging over QCOM is when the growth will explode. All dependent on the rollout of subsequent generations. With JDSU I think it is safe to say the best growth will be over the next few years, with a slight taper thereafter.

I agree Qualcomm is by far the more compelling investment at current levels. And as much as people point to the QCOM chart and tell their bear stories, you might be doing the same with JDSU soon. I don't like the way the market is treating JDSU right now. You certainly aren't the only one out there doing these types of analyses. My guess is a lot of people are questioning the JDSU valuation. Yeah, yeah, I know - it's growing like a weed. So are a lot of retailers, but you don't see them sporting P/E's closer to 500 than to 10. Eventually something has to give, and I think a lot of investors are over the initial euphoria and are now wondering how much these shares are worth. Feel free to disagree, but that's what I see happening to JDSU in the market these days.

I've already taken some profits there and am waiting for a more compelling valuation. If I don't get it, Qualcomm probably will get another influx of my $.

The only argument I can see against QCOM is the unlikely potential of another technology usurping CDMA.
No one seems to be arguing over the need for JDSU's ability to increase bandwidth.

Best of luck
DP
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I think there is an ancillary issue here.

I've read posts where someone is estimating eps in 5 or 10 years (usually w/ disclaimers re: the inherent problems in trying to do so). They then do the simple calculation and show how the CAGR is so large as to make an investment in the stock a no brainer.

I too have compared QCOM and JDSU and the other stocks I own in a very similar manner as you have done, using the analysts estimates for growth in the next 3 to 5 years and in my case I used a PE based on that growth (using a calculation to give a premium to the higher growth company). I just started doing this recently, and thought it would be a good exercise to see what my projected values going out 5 and 10 years did as actual eps numbers became known and the growth rates adjusted up and down.

So you show JDSU growing at 48%. I had it growing at I think 47% based on info from another site. But just about anyone on this board would suggest that 48% is well shy of what the growth will end up being. Do most GG players assume for their gorillas and gorilla candidates that the analysts estimates are by their very nature ultra-conservative and therefore shouldn't be used in such an analysis?

BTW, I show using this analysis that QCOM is the best buy in my portfolio, but I am in now way inclined to sell my JDSU to buy more based on all the other factors I consider (nor would I do the opposite).
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Do most GG players assume for their gorillas and gorilla candidates that the analysts estimates are by their very nature ultra-conservative and therefore shouldn't be used in such an analysis?


This is more of a risk assessment question and should be left up to each individual. From a conservative standpoint (the analyst estimates are usually very conservative) you might look at JDSU or any other holding and go for the worst case scenario that you can imagine (while still being viable of course). There is absolutely nothing wrong with being very conservative. If you are consistently conservative, you can still do useful valuation comparisons with your holdings when deciding who gets the next $$$.

Conservatism leaves you with some nice upside potential, and gives you something to smile about when the earnings pour in above your estimates. It also keeps you from getting too euphoric or buying at any price.

As for my techniques, I use many analyses. My favorite is a 5 or 10 year cash flow projection, to which I apply a Price to Cash Flow valuation based on the growth rate. This valuation is based on some extensive historical Price to CF's and growth rates I've applied an regression equation to. When doing a 10 year projection, I always drop the final year growth to 5-15% depending on the company's long term growth outlook. For instance I'd give a fast grower like JDSU a 15% 10th year growth rate. A typical Dow company would get a 5% rate.

So you show JDSU growing at 48%. I had it growing at I think 47%

Well SOMEONE is obviously way off here. You two better get together and get your numbers straight! <ggg>

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The only argument I can see against QCOM is the unlikely potential of another technology usurping CDMA.

CBSMarketWatch reported this morning:

South Korea's two mobile telecommunication leaders, SK Telecom (SKM: news, msgs) and Korea FreeTel, an affiliate of Korea Telecom (KTC: news, msgs), said Friday they plan to use Qualcomm competitors' W-CDMA (Wideband Code Division Multiple Access) technology for their new cell phone networks if awarded licenses from the government.

The full story can be found at http://cbs.marketwatch.com/archive/20000707/news/current/qcom.htx?source=htx/http2_mw.

Doug
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The only argument I can see against QCOM is the unlikely potential of another technology usurping CDMA.

CBSMarketWatch reported this morning:

South Korea's two mobile telecommunication leaders, SK Telecom (SKM: news, msgs) and Korea FreeTel, an affiliate of Korea Telecom (KTC: news, msgs), said Friday they plan to use Qualcomm competitors' W-CDMA (Wideband Code Division Multiple Access) technology for their new cell phone networks if awarded licenses from the government.


Ummm, W-CDMA is CDMA and Q's patents cover this. All this does is create the uncertainty of whether or not Q, as it claims, will receive the same royalty rate and whether Q will retain its chip dominance. In my mind, in Gorilla parlance, it is a current non-event other than to put the exclamation on the fact that CDMA is 3G and Q is CDMA.

As I have argued before, stock price movement is not a Gorilla indicator. Its like saying the stock market crash of 1929 caused the Great Depression. No, the bad economy caused by tightening money supply, trade wars, etc., caused the Great Depression. As a Gorilla investor look at the underlying fundamentals. If W-CDMA is material (in your opinion) then act accordingly. But if W-CDMA is immaterial than take advantage of any stock price weakness. Non-fundamental stock poundings, in my experience, are the single best source of extraordinary stock returns in the world. Just in the last month I'e doubled on BRCM, nearly doubled on GMST, NTAP, RNWK, and am now on a good run with AMCC. The dropping stock price was not consistent with the underlying fundamentals so I pounced.

On the other hand, with Citrix, the stock price drop was consistent with the underlying fundamentals so I did not pounce.

IMHO this W-CDMA scare is not consistent with the Q fundamentals. If you want a LTBH (and I mean it may take a year for this one to recover given the lack of potential catalyst in the foreseeable future) Q is very undervalued based on its potential. Said potential is not materially affected whether or not its W-CDMA or CDMA 2000 as long as it is CDMA.

Tinker

Tinker

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Well said Tinker. Overblown issue in regards to the Q.

BB
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be very, very careful here in drawing conclusions about Q's future on the basis of what is coming out of Korea right now.

First, remember that according to Dr. J QCOM collects royalties on all forms of CDMA including WCDMA, and that to date no one has done better than QCOM in producing workable CDMA ASICs, so WCDMA is hardly a non-QCOM technology.

Second, there is a huge degree of uncertainty at this point about just what WCDMA means and will come to mean. I suggest those interested go over to the SI G&K board and follow the ongoing discussion between gdichaz and Eric L. on this one, or go to the SI "Moderated Qualcomm" thread and follow the debate there. Let's just say that it is distinctly possible some kind of convergence might be going on behind the scenes, whereby QCOM's wine starts appearing in someone else's bottles.

Third, because the subject is so complex, the technology moving so fast, and the financial stakes so high, the whole question of 3G standards and implementation has been marked by an unprecedented degree of confusion, FUD, and outright lying. It is extremely difficult to get an accurate sense of what exactly is going on right now, especially on the basis of sketchy, uninformed, and potentially biased short-term news reports.

Bottom line: hard to see all this ruckus as a positive for Q, but it is by no means clear that in the long run it will be a major negative either. This is a classic example of why gorilla gamers should take an LTB&H view and ignore the daily hubbub. Anybody holding Q options or substantial margin here (like me) is a loon, but serious Q longs should almost certainly hang on and newcomers might, just might, find this a good entry point--that is, if they are prepared to wait a few quarters or years for a super return.

JMO,

tekboy@deepcleansingbreath.com
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<<newcomers might, just might, find this a good entry point--that is, if they are prepared to wait a few quarters or years for a super return>>

They might also want to wait for it to stop falling. Or maybe not. <g>
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<<They might also want to wait for it to stop falling>>

If their investing style leads them to take such considerations into account, then by all means they should--although I would suggest that people who are definitely looking to get it but are waiting for a good entry point should monitor the situation pretty closely, cause one never knows what kind of announcements (say, of some kind of NOK deal) could emerge in weeks and months to come.

Total newbies, of course, should probably not get in at this point unless they've done a lot of homework and independent DD, because they'll worry too much and get shaken out by all the FUD flying around.

tekboy@BWTFDIK.com
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tekboy (and anybody else paying attention)

Add this post to number 3214 just above it, and that's one cool post!

Mike
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sure ya mean #3214?

:0)

tekboy@hey,I'msupposedtobetheinnumerateone.com
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Well, I got it mostly right. Yeesh. In a 12 hour period I couldn't read a basic nine-letter tekboy @.com (it was nine, right?), and now I can't repeat four digits without twiddling two of them! Well, Mom always said it was good I didn't become a brain surgeon.

Okay, back to the yardwork.

mpw@ichbineinIdiot.com
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Tinker:

"Second the motion" Bruce made! "Very well said"! Hope you won't mind if I put the URL on Rat's board. Just doing some "crop dusting" a few day's late.
cya,knee
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