I don't practice full-time anymore. I'm currently conducting research clinical trials, but still manage to take on selective surgical cases that are interesting. I'm more of an academician than a clinician. As to trading, I have most mornings off. The profession has been a three generation pride. I'm in the works of venturing on my own to commence a proprietary hedge fund.
Google is relatively inexpensive based on several measures of value: A. The stock is trading at 38 times the 8.89 dollar per share that analysts on average expect the company to earn in 2006 and 28 times 2007 earnings of 12 dollars per share! Compared with Yahoo's price-earnings ratio of 57 for this year and 42 based on next year's, Google is cheap! Market leaders such as Google can justifiably trade at P/Es ranging from 50 to 60. For example, a 600 dollar one year target price assumes 2007 earnings per share of 11.98 and a P/E ratio of 50. B. PEG ratio is another manner in which Google's value may be measured. The faster the growth, the more justifiable a high P/E. In Google's case, the expected growth is 31% per year for the next 5 years. So its PEG is 1.2 based on this year's earnings forecast and 0.9 based on next year's. Generally, a PEG ratio close to 1 is considered cheap! A leading growth company like Google should trade at a PEG of 1.5 to 2.0. For example, a 600 one year target is based on a PEG of 1.6. By contrast, Yahoo's PEG is 2.5 on 2006 profit estimates and 1.9 on next year's. C. If you want to take your analysis to a higher level of sophistication and complexity, forget the P/E ratio. Because various accounting maneuvers can distort reported earnings, many analysts rely on purer measure of profitability that goes by the acronym EBITDA (earnings before interest, taxes, depreciation, and amoritization). D. Also, enterprise value (a company's stock market capitalization plus outstanding debt minus its cash holdings) is a better measure than a stock market value alone of how investors value a company; that said, if you describe Google's enterprise value by its Ebitda based on 2006 estimates, you get 23. The number by itself is meaningless, but compared with Yahoo's 34, it seems to suggest once again that Google is reasonably priced.
Hello Dr. Jack, Can you tell me a little more about your style of trading. Are you a discretionary trader? Do you trade chart patterns and support and resistance areas or do you use a mechanical system. Best regards, Trapper
My trading depends on technicals (market indicators and charts), and market sentiment (market behavior and psychology). Because I don't set stop losses (a rule which goes against many seasoned professionals), I rely on fundamentals as well-- thus, I never trade anything that I'm not willing to hold! Therefore, I simply allow my trades to pan out by heding my positions and dollar-cost-averaging. I refuse to use any software/automated trading system because they don't factor the element of market fear/greed.