Friday, February 04, 2005

Chinese and Indians are Buying.

Many people may not realize the level of globalization that is occurring in the world today. For a perspective of several CEOs from the G7 countries, click here. Basically, the economic growth happening in China and India will, in addition to providing powerful markets for western products, produce economic giants that will dot the global landscape by, for example, making acquisitions of western businesses.

What does this development mean to individual investors? Load up on select Chinese and Indian company stocks.

Wednesday, February 02, 2005

Google Valuations

It is an interesting exercise for anyone in the industry these days to try to analyze Google evaluation. Today, an interesting article by Mark Hulbert of MarketWatch has one such view. His analysis makes some assumptions on reasonable 5-year return and the P/E ratio that would be necessary in February 2010 to sustain it. For a 20% annualized return and a P/E ratio of 50, his model requires annualized growth rate in earnings. If you read the article, you probably would not want to run out and buy Google stock!

And, of course, there have been others - including myself - that argued that $85 itself was a little high valuation for the stock in August 2004. (See also John Battelle's blog).

On the other hand, Google seems to have created an effective distributed computing technological base that can be monetized in various ways. As a result, it is very conceivable that Google will derive a $20B revenue in 2010 that, for a short term at least, can sustain a valuation of $500B, equivalent to a $1800 stock! Recall that Cisco enjoyed such a valuation for a brief period in 2000. And, Cisco is not a software-only company that can produce outrageous profit margins.

I guess we all will have to wait patiently for the next 5 years to see the truth of these analyses.