Saturday, April 01, 2006

Google; GOOG April 1, 2006

David Dreman, Chairman of Dreman Value Management of Jersey City, recently wrote in Forbes magazine saying that Google that is overpriced at 68X trailing earnings, and investors are predicting high growth many years ahead.

His advice is to steer clear from overpriced stocks.

"Don't buy glamour stocks like these. Buy solid earners at reasonable multiples."

Among his suggestions are Anadarko Petroleum, which has solid earning for year 2005 as well as this coming year. Anadrko Petroleum has also authorised share repurchase up to $1B.

His other suggestions inclue EnCana, selling at PE of 12; 3M, which has grown 13% over the last 5 years; and United Technologies.

What David Dreman said reminded me of what Warren Buffett mentioned before, that was....

"You pay a very high price for cheery consensus"

"We insist on a margin of safety in our purchase price. If we calculate the value of a common stock to be only slightly higher than its price, we're not interested in buying. We believe this margin-of-safety principle, so strongly emphasized by Ben Graham, to be the cornerstone of investment success."

All the best,
Dah Hui Lau (David)

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