How Much Will Investors Pay For Flat Growth?

Cisco Systems embodies the central dilemma for investors in the current market: how much is flat growth worth, even among the best companies?

For Wednesday, at least, investors decided that a forward price-to-earnings ratio of 25 is enough, as Cisco declined 2.5% despite better than expected results and a modest uptick in orders. With analysts predicting flat earnings growth for the company through at least mid-2004, investors decided the stock was fully valued.

With the S&P 500 trading at 30 times earnings under generally accepted accounting principles – twice the historical norm despite the longest bear market since 1937-1942 – companies may need a stronger rebound in earnings to send the market significantly higher.

The Nasdaq fell 16 to 1506, the S&P 500 slipped 4 to 929, and the Dow gave back 27 to 8560. Volume declined to 1.5 billion shares on the NYSE, and 1.9 billion on the Nasdaq. Decliners led 17-15 on the NYSE, and 17-13 on the Nasdaq. Downside volume was 59% on the NYSE, and 72% on the Nasdaq. New highs-new lows were 183-6 on the NYSE, and 148-17 on the Nasdaq.

After the close, EDS missed earnings estimates by a penny and soundly beat revenue estimates, but also warned.

During the day, Qualcomm fell 2.7% on competition from Texas Instruments , which lost 4.5%.

Earthlink fell 2% after suing the notorious “Buffalo Spammer.”

Interland soared 39% on a deal with PayPal and analyst comments that the stock is undervalued.

RealNetworks gained 3.6% on a deal with Speedera.

Emerson Electric , once the most consistent company in the U.S. stock market, fell 5.5% on a warning.

Dell hit an intraday 52-week high, but failed to close at one.

Sun fell 3.8% as the company addressed Linux concerns.

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