Investing Wisely - 5 Timely Valuations for Telecomm Equipment

By: Steve Bauer | Thu, Dec 30, 2010
Print Email

"The market is doing what it loves to do." Lately, that means it is both fundamentally and technically very fickle and non-decisive and likely topping. What the investor often forgets is that what has become a fact is -- in reality -- very creative fiction. The flow of fictional stories being told by Wall Street, the media and individual financial analysts are so compelling that the average Investor takes the bait along with the hook, line and sinker most every time. That's a fact and, for me, it is very sad to realize that this kind of deception is actually going on.

The current position of the Telecomm Equipment industry group, both US domestic and international, is quite low on my consensus rankings of over 200 industry groups. Therefore, I expect it (Telecomm Equipment) to begin to crumble again during the time frame of my anticipated pullback. Over the short-term, this industry group does definitely, qualify as "currently unfavorable" and the shares of its component companies should likely be avoided or shorted during anticipated bearish moves in the marketplace. However, over the longer-term I am quite positive on many companies. The oxymoron is, as always: Can you afford the risk / reward ratio and how is your insight as to holding your positions and to making timely investment decisions? These companies are definitely not doing well, as compared to others in this current rally.

In the table below you will see why my approach of valuation offers five rather weak companies that I believe can be profitable (on the short side) in the short to intermediate-term, however not necessarily right now. Remember to be a bit patient before taking positions.

Valuation/Comparative Analytics Table: Telecomm Equipment

Stock Cur.
Price
My Target Price % Above (+) or Below (-) Cur. Price "Tweaked" From its Bearish Inflection Point PEG P/E Forward P/E Average of Low/High Estimates Divergence (%) -then- "Tweaking" -to get- My Target Price % Multiplier Comments / My Analytics / Weighting: Fundamental (40%) Technical (35%) Consensus (25%) / When my anticipated pullback occurs - lower prices definitely forecasted for all?
Arris Group
(ARRS)
11.2 - 15% to + 10% 0.92 16.8 13.9 + 17% Obviously a very poor valuation and price projection to consider owning.
Cbeyound
(CBEY)
15.6 - 20% to- 35% 85.5 372 781 - 109% Obviously a very poor valuation and price projection. Possible Short.
Comtech
Telecomm

(CMTL)
27.4 - 20% to - 45% 0.40 11.4 19.0 + 65% Obviously a very poor valuation and price projection. Possible Short.
Corning
(GWL)
19.3 + 10% to - 10% 0.87 9.4 10.2 - 8.5% Obviously a very poor valuation and price projection to consider owning.
Tellabs
(TLAB)
6.7 - 15% to - 30% 1.36 11.3 15.9 + 29% Obviously a very poor valuation and price projection. Possible Short.

4 Notes for your information:

a) Fundamental valuation, data in today's marketplace requires me to look carefully at the numbers as being either realistic or creative. That's because more recently financial analysts using new / funny math and have changed the criterion on basic valuation. This is producing many valuation data inconsistencies, I have adopted an additional procedure that I call "Tweaking the Results." This procedure is sometimes needed to get me back to 'realistic' valuations. It requires having an eye on the short and intermediate-term company price movement, but is definitely not a part of my rather unique technical analysis. My valuations also consider the two-year - forward P/E data. Using this procedure produces very accurate analytics for decisions at bullish and bearish inflection points.

b) Most financial analysts determine the price target range by estimating a future earnings per share and then applying a price-to-earnings multiple, also known as the P/E ratio. I prefer to calculate price targets (high / low) for both the current and next fiscal year by applying the stock's present multiple to the average analyst's estimates and follow with some foxy 'tweaking' of the results.

c) Further, I believe that there should be just two aspects of fundamental valuation. They are: the now and the later, which translates to 1-2 years and more than three years but not 10 years. Obviously, the further out we try to project earnings and cash flow, the more inaccurate the data becomes. That is why I do my valuations rather frequently.

d) PEGs: You will note that these companies are carrying high or negative PEG ratios. Normally, that is typical of this industry group and does not mean much to my current valuations.

For a current (up to the minute) chart of the Telecomm Equipment industry group and my "Bellwether" Indicators -- 5 Indices, 12 Sectors and 23 other high profile Companies. Click on this URL and then scroll way down.
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID4095527

Since coming out of retirement in October 2007, I have witnessed a vast change in the valuation practices being offered by many financial analysts. The shenanigans and other accounting practice games were active before, (in the old days!) but have now reached a new height of deception. The general public is often lazy about learning and perhaps quite naive. The financial analysts know that these characteristics exist and now are taking advantage and that troubles me. It's simple, the average Investor is asking to be told that, "all is ok" so that is what they are being given, be wary of what you ask for! Honest and forthright information and data is unfortunately a thing of the past.


My Wrap

While I believe the general market may be in for a pullback, the prevailing question from most investors is: When? How big and how long will it be? Do I hold my current positions or do I sell? Is there a profitable alternative? Etc. The answer will be obviously quite clear when the pullback is over but an old axiom for profitable investing tells us to be prudent in times like this. You might want to remember that, cash is always an excellent safe harbor.

However, if you are a proactive investor, taking bearish positions may also be wise.

My focus is "investing wisely," e.g. taking advantage of the bull/bear cycles as they occur within the overall marketplace. Integrating modern analytics within these "cycles," means maintaining a process of the thorough fundamental analysis of many companies and more than 200 industry groups in my universe. I believe that this discipline provides the necessary clarity regarding the rotation that most all sectors, industry groups and companies goes through - from fundamentally favorable times to fundamentally unfavorable times and perhaps back again. The same "cycle" effect is also true when doing comprehensive technical analytics.

This is just another one of many "bellwether" industry groups to help identify candidates for buying and for short selling as the marketplace cycles from bull to bear and back again - over, and over, and over again.

The good news about the marketplace is that we are presented frequent and conservative / low risk opportunities to invest long, invest short or to simply to hold cash. For me, this is called "investing wisely."


Thank you for your time in reading my "stuff" and continued interest in my work / analytics.

Smile, have Fun - "Investing Wisely",

 


 

Steve Bauer

Author: Steve Bauer

Steven H. Bauer, Ph.D.

Steve Bauer

Steve has several degrees, i.e. post graduate degrees and doctorate and a great deal of (too much) continued education. For seven years, he did a stent as a University Professor of Finance and Economics.

Dr. Bauer also writes for SeekingAlpha.com. His articles can be viewed at: http://seekingalpha.com/author/steven-bauer?source=search_general&s=steven-bauer

He owned a privately held asset management firm and managed individual investor and corporate accounts as a Registered Investment Advisor - for over 40 years.

Professionally he is a financial analyst and private asset manager / consultant / mentor.

Steve can be reached at senorstevedrmx@yahoo.com

Copyright © 2010-2013 Steven H. Bauer, Ph.D.

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com

SEARCH





TRUE MONEY SUPPLY

Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/