|Flabbergasted at 1400 for the S&P 500? Maybe it's because a lot of companies are making a lot of money – more money than last year.|
There is always a danger in assuming that individual stocks perform in line with the average market. They do, of course, become influenced by general trends, but here the question is whether SanDisk is overpriced. If you look back a little more than six years, you'll see that SNDK was as high as now, in fact, a little higher. Yet the earnings weren't as good and the future capital outlays, as a percentage of equity were greater than they are now.
Whenever stocks as a whole take off, you'll find plenty of fund managers and analysts ready to say, okay, that's enough for awhile, and accordingly take profits. But as I noted above, the danger is in looking at the whole market rather than individual stock prospects. SanDisk is one of the best examples in the tech/semiconductor sector of an undervalued stock. Undervalued because the current forward looking price-earnings ratio is barely half the expected earnings growth. And that's before factoring in the lower value of the Japanese yen and its impact on margins.
There are certain stocks or kinds of stocks I would not want to buy at this point. Oil stocks, for one. Financial services stocks, for another. I wouldn't want to touch a stock like Goldman Sachs, especially now that the New York Times has published an article by an employee who quit because of questionable practices he saw first hand at Goldman. Those who have followed this thread for some time may recall the very questionable recommendations (mostly sell) by Goldman in regard to SNDK when it was selling well below its present level. Was this just another example of Goldman doing what its former employee said they do best – look out for themselves?
Those negative views helped keep SNDK share prices well below where they might have been had they been treated the same as other stocks with similar growth rates. With the shares barely touching $50, however, there seems to be a lot of room for improvement. Depending on how well the rest of the market holds up (I recognize investor sentiment as a legitimate factor), SNDK could easily reach $65 to $70 on fundamentals alone. The probability of reaching even $60 is high enough to justify holding the shares.
It's better than cash, for sure.