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techstocks.com
In This Issue:
1. The 4 Horsemen Lead Charge!: Technology and Internet Outlook
2. "Last Mile to the Home" Stocks
3. Maxim Integrated Products
4. Chubb & Healthsouth
5. Interesting Articles On The Internet
6. Highlights on SI: by Tom Taulli
7. Have you heard an interesing gossip or rumor about a
stock on the net?
8. SI is offering a 30 Day FREE Trial, Win a Free SI
Membership, Get a FREE SI T-Shirt!
9. Disclaimer
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1.
techstocks.com
What I find intriguing about the recent
run up in the NASDAQ Composite is that
the top percentage gainers in that index or the
top 10% rose 27.2% for the first half of
1998. The rest of the stocks in that index
produced an average gain of only 4.8% as
noted by Geoffrey Eiten, Editor of Growth
Stock Watch otcgsw.com. The
NASDAQ Composite which started the
year at 1600, recently hit a high of 2028 and
is now below 2000. The Morgan Stanley
HI Tech Index (An index of 35 High Tech
Stocks), started out the year at 450 and
recently hit a high of 669 and is now around
the 620 area. That implies a gain of around
40% so far this year for that index.
What has led the charge for those indexes is
the "Four Horsemen", Microsoft, Dell
Computer, Cisco Systems and Intel. Intel
has not really done much in terms of
appreciating this year but has recently rallied
from their 52 week low of $66 to $82.
Microsoft is of course the great phenomenal
stock of this century. Their stock has made
me a lot of money along with many other
investors but how high can their stock go?
With their market capitalization hovering
around the $300 billion level, what kind of
rocket fuel will it take for their stock to keep
going up? On top of that rather large market
cap, their stock is up over 300% during the
past 3 years. Can Microsoft keep
appreciating in value like it has been?
Probably not at the rate they have been
growing over the last few years. In order for
Microsoft to double again, their market cap
would have to approach $600 billion. This is
not impossible but rather unlikely to
accomplish over the next 12 months. The law
of physics have been shunned away for this
stock market. What goes up, keeps going up.
Microsoft may be one of the best run
companies in the United States, I will not
argue that but, they are trading at over 60
times next years earnings estimates and they
are expected to grow earnings in the 30%
area. Microsoft has always beat estimates
but investors should not count on their stock
producing gains in excess of over 50% during
the next year. I still look for them to
appreciate in price but not at the rate that they
have in the past. Dell will continue to see
strong demand for their computers, along with
their workstations. Cisco is trading at about
50 times next years earnings, which is right in
line with their growth rate. I do not look for
their stock to produce another 80% gain
during the last 6 months of 1998. That is how
much Cisco is up during the first half of this
year and plan for their shares to stall out going
into the rest of this year. Longer term the
Internet will help fuel demand for their
products and their stock will move higher.
Intel has been a laggard in the group, running
up recently but not providing investors with
much of a return year to date. New chips and
a robust market for personal computers
should give them the strength for their shares
to touch a new high by year end.
The short term correction in technology
stocks may be a warning sign for some short
term technology investors to take profits. As
technology products make peoples lives
easier and more efficient, technology
companies will continue to benefit and
investors are reaping the rewards of the new
technological economy. Smart investors will
use a weakness in the shares of technology
stocks as buying opportunity to purchase
shares or average down their positions.
I recently read a very interesting article that
compares the advance in Internet stocks to
the Tulip Mania of the 1600's that I enjoyed
very much. Click here to read the article. The
author of that article will admit that he uses the
term "Tulipmania" in a sarcastic vein and
admits that Internet stocks should "blossom".
The Internet is providing a specific need to
their users and in many instances causing the
prices for many products to go down. Tulips
never had this effect on an economy as a
whole, nor did they provide a technological
edge over competing or traditional forms of
commerce such as the Internet is doing right
now. Many people question the valuations of
many Internet stocks and in most cases they
should. But in light of questioning the actual
value for which they trade, investors have bid
up the value of many Internet companies in
anticipation of future results.
The Internet does hold a lot of promise for
things such as advertising and electronic
commerce. The Internet is still in a building
phase that will give greater and easier access
to purchase products and services. Online
stores, banking and e mail has already made
many peoples lives easier. The future for the
Internet is still in its infancy and offers much
room to grow. Many investors have made
some serious money investing in Internet
stocks. The question is, how can investors
make money buying these stocks at already
lofty valuations?
Despite the high valuations and the current
advances of many Internet stocks, individual
investors, wishing to capitalize on the Internet,
should buy the leaders in that sector. Yahoo
(YHOO 193 3/4), first mentioned here in
the Internet Financial Connection a few
months ago at $118 a share has gone up to a
high of $207. Their earnings and revenues will
continue to grow in the 75% area over the
next few years as millions of more users log
onto the Internet. I will admit that their
valuation is very lofty, selling at about 40
times future revenues. Any bump along the
way could cause a 50% collapse in their
shares. Looking at the positive side, they are
a the leader in their field and are working on
and signing agreements with other Internet
related companies to provide an expanded
array of services for Internet users. Their
stock is a key holding for the individual
investor wishing financial exposure to the
Internet. Buying their shares on 20%+ decline
would be the best bet.
America Online (AOL 130 3/4), like
Yahoo, has seen their shares move up
significantly during the short term. They will
benefit directly from electronic commerce, as
well as an increase in their subscriber base.
Their stock should easily hit a market cap of
$100 billion over the next 3 years, which
would imply an increase of 4 fold from current
levels. Buying their stock on a 10% to 20%
correction would be a good entry point.
In summary, the Internet will provide many
investors with opportunities to make money.
Many Internet stocks have run up, based on
future expectations. Not all Internet stocks
will make investors money. Many companies
will fail and be pushed aside by larger Internet
companies. Buying the leaders right now is a
starting point for investors to capitalize on the
Internet because they have the resources to
make quick changes in a very fast moving
environment.
Mark Johnson Editor IFC
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2.
techstocks.com
Jean-Pierre Conreur of Tocqueville Small
Cap Value Fund 800-697-3863, provides
the following stock ideas. Below is
the write up.
Over the last few years, the cable
infrastructure industry has suffered because
Tele-Communications Inc. (TCI) had cash
flow problems and was losing subscribers to
satellite dish buyers. The problems that TCI
had caused a spending freeze in many areas
of the cable infrastructure industry. On June
24th, AT&T and TCI announced that they
would merge together.
That merger will give TCI the needed cash to
upgrade their services to attract new
customers. Other cable companies will also
have to invest money to upgrade their
underlying infrastructures because telephone
companies are becoming more interested in
competing with them. Jean-Pierre Conreur
of Tocqueville Small Cap Value Fund
believes that companies offering "Last mile to
the home" hardware to cable operators will
be direct beneficiaries. Jean-Pierre recently
put 14% of his funds portfolio into that area.
One of the companies he likes in that area is
Antec (ANTC 24). They provide network
interface devices that route video, voice and
computer signals to and from your TV,
telephone and PC. Click here to read a
profile on the company. In the first quarter of
1995, TCI's accounted for $60 million or
40% of Antec's revenues. By the first quarter
of 1998, TCI only accounted for $6 million in
revenues. Jean-Pierre thinks that those
numbers will pick up once TCI starts
upgrading their infrastructures. TCI currently
owns 22% of Antec.
Another one he recently bought is Scientific
Atlanta (SFA 24 3/4). Jean-Pierre notes
that SFA has a new cable box and has one
material advantage over its competitor
General Instruments. SFA's cable box is
fully interactive and "is in a position to
dislodge General Instruments".
Teltrend (TLTN 14 3/4) manufactures
equipment that is used to transmit data over
copper and fiber optic lines. "This company
straddles the needs of the telephone
companies and the cable companies... They
will benefit from the push to deliver more
services into homes," says Jean-Pierre.
C-COR Electronics (CCBL 15 5/8) is
another one he favors. They manufacture high
quality electronic equipment (amplifiers) used
in the cable industry. "As a new wave of
capital spending approaches, C-COR is
positioned to be a big winner," says
Jean-Pierre.
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3.
techstocks.com
Doug MacKay of White Oak Growth
Fund provides the following stock idea on
Maxim Integrated Products (MXIM 32).
Below is the write up.
Maxim Integrated Products is a maker of
specialty analog semiconductors. Their
products are primarily used to convert real
world signals, such as temperature, pressure,
or sound, into the digital signals necessary for
computer processing.
Like many semiconductor stocks, Maxim is
taking their lashes along with the other chip
makers. Doug MacKay of the White Oak
Growth Fund (Which is up 32% YTD)
argues the end market of semiconductors that
Maxim supplies to are broadly diversified
and not limited to the personal computer
sector, which has been vastly affected by
overcapacity. Doug has been accumulating
shares of their stock during the current
weakness. He also points out that because of
where Maxim is positioned in the industry,
they have not seen pricing pressures or
slowdown in demand. Maxim commands
operating margins of 45%.
Maxim has consistently increased revenues
and earnings at an average annual rate of
30% during the last 10 years. In 1997,
Maxim posted revenues of $434 million for
fiscal year ending in June. They have a goal of
reaching $1 billion in revenues by the year
2000. Maxim has no long term debt.
"Longer term, I think, they are ideally
positioned to be the leader in their market,"
says Doug, "I do not see the market in which
they operate going away or becoming
commoditized."
Maxim is estimated to earn $1.50 for fiscal
1999. Doug points out that Maxim
historically trades at 30 times earnings and
believes their shares can hit $50 sometime
within the next 18 months.
There is a thread that discusses MXIM on SI.
www2.techstocks.com
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4.
techstocks.com
Mark Cummins of Harleysville Group
Inc. provides the following stock ideas on
Chubb Corp. (CB 82) and Healthsouth
(HRC 28 1/8). Below is the write up.
On July 20th this year, Chubb Corp.
announced that they would report an earnings
shortfall for their second quarter earnings
estimates. Because of the estimated shortfall,
their stock has dropped about 5 points since
the announcement. "This earnings shortfall is
not a surprise, knowing the catastrophe losses
that the industry incurred for the second
quarter," says Mark Cummins of
Harleysville Group Inc. (whose firm was
ranked number one for their 3 year
performance by Nelsons). He views the
weakness as a buying opportunity.
Chubb Corp. is the 12th largest property
casualty company in the country. Mark notes
that Chubb is a good solid company that is
growing faster than the industry average.
"They also have shown consistent strong
financial results, they have a solid balance
sheet and a great management team." Over
the last few years, Chubb has sold their life
insurance and real estate development
business so they can direct their focus on the
property & casualty business.
Mark believes that Chubb will grow 1999
earnings in the 14% area when compared to
the 1998 results, with their shares hitting over
$100 sometime within the next year.
Another stock Mark likes is Healthsouth.
They have shown a consistent and impressive
rate of earnings and revenue increases from
internal growth and through acquisitions.
Healthsouth is the nations largest provider of
rehab healthcare and outpatient surgery. They
are located in all 50 States with offices in the
UK and Australia.
"They provide services cheaper than hospitals
can," says Mark. Longer term, he believes
that they can grow earnings in the 20% area
with their shares hitting $40 within the next
year.
There is a thread that discusses HRC on SI.
www2.techstocks.com
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5.
techstocks.com
Joe Dancy of The Lone Star Growth Investor
members.aol.com
provides the following links to Interesting
Articles On The Internet. These articles were
from a daily worldwide search of over 150
newspapers and magazines. Subscriptions to his
newsletter are FREE.
members.aol.com
COMPUTERS, THE INTERNET & INTERNET COMMERCE
Internet gambling is inevitable whether it is individuals,
existing "physical" casino monopolies, governments or
crooks who play the trade. Net gambling hit the spotlight
last month when a number of overseas Web sites
suddenly appeared after the World Cup kick-off
scmp.com
Some of technology's most creative thinkers gathered in
Silicon Valley the other day to describe and show off their
latest ideas, which ranged from a talking couch that tells
you when your nap is over to a pair of eyeglasses that
double as a computer screen.
sfgate.com
A video camera, tethered to a computer, focuses on
your eyeball. It's watching where your eye lingers on the
World Wide Web page you're viewing, and when it
decides what interests you it'll look for related
information.
mercurycenter.com
Not so long ago, David Epstein marketed commercial
photography. Zachary Julius, his college chum, worked
in cafeteria products. Then, without formal training in
computers, they opened up a coffee and computing
cybercafe and started selling Internet access. Just over 2
years later, at age 29, they are selling their
Springfield-based company, JavaNet, for $15.8 million
to RCN Corp. The sale announced this week is the
latest sign of the overheated race among businesses to
carve out a solid place in the exploding market for
Internet service.
globe.com
It all may sound like speculative mania. But there may be
a more rational explanation for why investors are willing
to pay more for little Amazon than for its giant
counterpart. ''They have the better business model,'' says
Paul Sonkin, adjunct professor of securities analysis at
Columbia University who also manages money.
mercurycenter.com
Internet watchers see as a looming wave of small and
medium-size merchants entering e-commerce. Consumer
sales over the Internet totaled $2.4 billion in 1997 and
are expected to surge to $17.3 billion by 2001,
according to Forrester Research of Cambridge, Mass.
chicagotribune.com
J.R. Ewing would be proud. The Dallas entrepreneurs
who started an Internet entertainment programming
service hit a gusher Friday called "Internet mania." The
price of shares in Broadcast.com Inc. more than
quadrupled during the first day of public trading, an
investors fought and schemed to get in on what
promoters call the next generation of television. It was
one of the biggest percentage gains ever for an initial
public offering.
chicagotribune.com
INVESTING
There are two styles of stock investing: growth and
value. Lately growth has been beating the pants off
value, but some suspect that will soon change. Value
investors try find stocks that are forgotten, out of favor,
or misunderstood.
washingtonpost.com
While mergers get the attention, spinoffs get the profits.
Studies show that when a company divides into two or
more separate parts, the owners of each do very well --
often because values are created that the market doesn't
immediately understand.
washingtonpost.com
Even with U.S. stocks at record valuations, mutual fund
managers who look to buy stocks on the cheap say
they're finding plenty of bargains. "It's amazing that this
market is concentrating a lot on the favorites," said
David Dreman, 62, whose Red Bank, N.J.-based
company manages about $6 billion in customers' assets.
detnews.com
The stock market has been compared to a casino when,
in fact, it is the opposite - the market, on average,
produces positive returns. In a random game with stocks
you are certain to win --over a one year period the odds
are three to one in favor of scoring a positive return.
Over 15-year periods stocks have been profitable 58
times out of 58, which is called a sure thing.
members.aol.com
A quiet professor of chemical engineering and his wife, a
former teacher, shocked their friends when it was
discovered that they amassed $800 million by investing
in undervalued equities.
members.aol.com
Nobel Prize Winners Put Investment Theory to Test -
and put their money into small cap undervalued stocks
Nobel prize winners put academic theory to the test -
and invest in small capitalization and low price-to-book
value stocks in an attempt to outperform market
averages.
members.aol.com
Peter Siris in his book Guerrilla Investing notes that the
Internet has created a revolution for the individual
investor - if they don't compete against the institutions.
members.aol.com
As the world's economies become more closely linked,
investors are increasingly searching out opportunities to
buy stocks. But international investing is fraught with
dangers, especially since many countries do not have a
stable government. Strategists are increasingly warning
their clients that when politics and investing mix, the
results can sometimes be explosive.
nypostonline.com
Fund managers that have had the most success making
money in Japan are convinced that the surprising election
results and subsequent resignation of Prime Minister
Ryutaro Hashimoto will be the catalyst to even higher
returns in the future.
nypostonline.com
There has been rioting in Indonesia. Nuclear tests in
India. Chest thumping followed by nuclear tests in
Pakistan. Support for the yen as Japan wallows in near
depression. Worry that if the yen falls any further against
the dollar, China will devalue its currency. Gross
economic unrest in Russia. Chaos and mayhem in Africa.
Time to invest in Asia?
dallasnews.com
A handful of NASDAQ stocks, perhaps the top seven,
are the ones doing the heavy lifting as the market
advances. Tech stocks with beefy market capitalizations,
such as Microsoft, Intel, Dell and Cisco Systems, are
pushing the Nasdaq over 2,000. In short, what is driving
the broader market to record- shattering heights are
large-cap stocks.
sfgate.com
SEMICONDUCTORS
Despite their frustration over the snail's pace of the
300-millimeter wafer transition, executives who attended
a closed-door meeting, put together this week to discuss
the matter, insisted that chip and equipment vendors are
determined to cooperate as they wait out the production
delay. Equipment makers' concerns reportedly centered
on their return on investment, as a paralyzing recession
and continued successful die shrinks are diluting demand
for the 300-mm equipment that's already been
developed.
techweb.com
Jitters from the Japanese election added to the pall cast
over Semicon West, the huge chip-equipment trade
show. With Japanese Prime Minister Ryutaro Hashimoto
resigning Sunday, analysts and executives fear that the
turmoil could prolong any economic boost for one of the
industry's key regions. But this cycle is even worse than
the downturn of the early 1980s, said Jim Morgan, the
veteran chief executive of industry leader Applied
Materials. ''It's among the toughest and most unforgiving
that I've seen.''
sfgate.com
The semiconductor equipment industry is the pits, but
that could be good news for investment bankers like Tim
Sullivan -- and maybe for bottom-fishing investors.
Equipment-makers may be getting the urge to merge.
sfgate.com
The chip industry's slump -- which already has slashed
company earnings and forced thousands of layoffs -- is
now threatening to slow the typically breakneck advance
of semiconductor technology. Semiconductor
manufacturers are hesitating to invest in the development
of larger silicon wafers -- the stuff from which silicon
chips are cut -- despite the new wafers' promise of long-
term cost savings.
mercurycenter.com
ASIA, JAPAN & RUSSIA
United States Treasury Secretary Robert Rubin has
urged the new Japanese Government to take rapid
action to solve its economic problems and avoid the
inactivity that characterised the last days of the
Hashimoto regime. "It's absolutely imperative Japan
moves effectively and expeditiously to deal with its
economic issues, in particular making sure the fiscal
programme is sufficient to generate domestic
demand-led growth," he said.
scmp.com te=Default.htx&maxfieldsize=2846
Key pillars of Japan's economic model are collapsing
and industries must make dramatic changes to lift the
economy out of recession, the government said Friday.
In a grim report, the Economic Planning Agency said
Japan's economy is "stagnating" and that time-honored
practices such as lifetime employment and
seniority-based promotion are not working.
detnews.com
ECONOMIC
The U.S. trade gap soars as imports rise and exports
shrivel - a stunning collapse in shipments to Asia
accompanies more American purchases of foreign
goods. mercurycenter.com...
The summer of 1998 likely will be remembered as the
Good Old Days in years to come, at least in the
economic sphere.Consider that inflation is comatose,
unemployment is low, the stock market is climbing to
record levels and interest rates could be headed still
lower.
mercurycenter.com
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