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The Internet Financial Connection, May 7, 1999
Presented by Mark Johnson, Editor of the IFC
techstocks.com
It appears exclusively on Silicon Investor
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This newsletter can be viewed at
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In This Issue:
1. 16 Months Into e-Commerce the Next 100 Months...
2. Copart
3. Cost Plus
4. WPP Group
5. Investment Opportunities From "Mortal Combat"
6. Interesting Articles on The Internet by Joe Dancy
7. IFC/SI Reader Highlight: ACTV Inside
8. Disclaimer
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1.
techstocks.com
August West is an active member at the e-Commerce
the Next 100 Months...... thread on SI.
August provides the following commentary about
what goes on there and his outlook on the e-commerce
area. To conserve bandwidth, please click the link
below to access the article. If you have any
interest in the Internet area, it is well
worth reading!
techstocks.com
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2.
techstocks.com
Elizabeth Pearce of The Highmark Small Cap
Value Fund, highmark-funds.com,
provides the following stock idea on Copart
(CPRT 18 1/8). Below is the write up.
Move over eBay here comes Copart! Copart runs
salvage yards for auto insurance companies. When
a car is totalled, Copart handles the auction
where the vehicle is sold to dismantlers, rebuilders
or auto body shops. They moved their auctions onto
the Internet and have been extremely successful.
Copart's Internet sales program began in late 1998
and has had steady growth in buyer acceptance, use
and sales. The Company reported that approximately
$3.6 million of its March 1999 gross auction proceeds
were generated from vehicles sold or pushed through
bidding on the company's Internet web site. "This is
a traditional business that is using the Internet to
make their business more efficient," says Elizabeth
Pearce of the Highmark Small Cap Value Fund. In
March, Internet sales were 59% higher than in
February. Nevertheless, since Copart specializes in
auctions of salvaged autos, they won't put eBay out
of business anytime soon.
About 70% of Copart's Internet sales derive from
buyers who reside in a different state from where
the vehicle or item is based. One example of how
successful these auctions can be is when a totaled
Mercedes SUV was brought into one of Copart's auto
yards in Bakersville California. The pictures were
displayed over the Internet and an auto repair shop
that specialized in those cars, in Connecticut,
paid a whopping $16,000 for the vehicle. One reason
why they paid so much for it was because, many of
the parts in the car were hard to come by. Perhaps
more significantly, the sales to local buyers has
been increasing. Local buyers appreciate the
efficiency of searching for specific models and the
convenience of bidding on line and avoiding full
day, in-person auctions.
Elizabeth explains that Copart is the largest player
in the national market for salvaged vehicles. "They
are a consolidator in an industry where there are
high barriers for entry. Very few urban areas want
one of these sites put up close to a city or small
town. They have relationships with Allstate, State
Farm and other major auto insurance companies... It
is hard for the mom and pop shops to compete with a
national company with sophisticated systems."
Generally, when a car is totaled, insurance companies
will take title to that car. Copart will then store
the car for them and take 5 pictures of the vehicle.
These pictures are posted on the Internet for auction
purposes. Copart is the largest user of digital
pictures on the Internet. On the other side of the
transaction, the insurance companies had been the
recipient of several hundred page monthly reports,
telling them where all of their cars were. Now, they
can access that information over the Internet.
Copart is expected to earn $0.73 in fiscal year end
July of 99' and $0.90 in 00'. Elizabeth figures there
is upside to those estimates and sees their stock
hitting the mid 20's within the next year.
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3.
techstocks.com
Richard Gould of the no-load Rockland Growth Fund
greenvillecap.com (800-497-3933), provides
the following stock idea on Cost Plus (CPWM 34 7/8).
Below is the write up.
The Rockland Growth Fund, you could say has done well
and is ranked 8th out of 449 other small cap funds,
according to Lipper Analytical. Their fund returned
a respectable 25% in 98' and the Russell 2000 small
cap index was down 3% during the same time period.
Manager Richard Gould of the Rockland Fund is high on
Cost Plus. They are specialty retailers of casual home
living and entertaining products. The Company operates
90 stores in 16 states under the name "Cost Plus World
Market" which features a selection of casual home
furnishings, housewares, gifts, decorative accessories,
gourmet foods and beverages, which are imported from
around the world. Click here for more information.
Richard says that Cost Plus has been in business for
41 years and is not a fly by night operation. He is
impressed with their strong growth and having 38 stores
in 92'. "They currently have 90 stores, are expected to
have 102 by the end of 99' and 146 total stores by the
end of 01', says Richard. "A great thing about their
model is that in the first year a new store is opened,
an average new store will have about $3 million in
sales. In the 2nd year after a new store is opened, the
average sales are $3.5 million and in the 3rd year that
average increases to $3.9 million. They do a wonderful
job at adding new product lines in stores, which has
been very successful. Word of mouth also brings in new
customers, that helps increase new store and existing
store sales."
Cost Plus is estimated to earn about $1.20 in fiscal
January 00' and $1.44 in 01'. Richard thinks there is
upside to those estimates. He figures their stock can
touch the $50 level sometime within the next 12 to
18 months.
There is a thread that discusses CPWM on SI.
Subject 15876
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4.
techstocks.com
Thomas Melly of Simms Capital Management,
simmscapital.com, provided the following
stock idea on WPP Group (WPPGY 87). Below is the
write up.
WPP Group is a UK based advertising holding company
with names that include J. Walter Thompson Worldwide
and Ogilvy & Mather. WPP provides media advertising,
strategic marketing and research & sales promotion.
They service to local and multinational companies,
including more than 300 of the Fortune Global 500
businesses. Click here for more information about
the company.
WPP's stock was trading in the mid 70's last July
and then plunged all the way down to the $35 level,
on the fears of global recession and cuts in
corporate advertising budgets. Since then, their
stock has recovered into the mid 80's. Tom Melly of
Simms Capital Management explains, that in the event
of a world wide economic downturn, as market pundits
predicted last fall, WPP's outlook was not so rosy.
Therefore, investors sold off their stock. "Many
areas of the world are doing quite well, and that is
good news for WPP. They are an attractive global
player. They have high returns on equity, good
earnings growth, and their stock has not gone up a
lot, when compared to where their shares peaked last
summer. Three quarters of a billion dollars in new
business was announced for the first quarter, things
are looking very good for them," says Tom.
Tom notes that other peer companies such as Omnicom
and Interpublic Group trade at 31 and 26 times year
00' estimates receptively, while WPP trades at 22
times forward earnings. He thinks the stock can trade
at comparable earnings multiples as their competitors
and approach the $120 area within the next 12 to
24 months.
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5.
techstocks.com
Joe Dancy, co-editor of the IFC and editor of the
The Lone Star Growth Investor
members.aol.com provides
the following interview with Matt Stichnoth of the
Wall Street Companion. AudioInvestor.com provides an
audio version of the interview. Click the link below
audioinvestor.com
if you would prefer to listen to the interview. Below
is the write up.
Matt Stichnoth, publisher of the Wall Street Companion,
is a "contrary minded value based investor." Stichnoth
notes how poorly the Russell 2000 has performed
relative to some of the indexes tracking larger
companies. The S&P 500 "is in a classic bubble," and
history indicates that these overvaluations do not end
well.
When selecting undervalued stocks he looks for certain
"flags" that indicate potential turn around situations.
One thing he looks for is insider purchases. Another is
spinoffs, since many of these companies lose
institutional interest and support. Last, he looks at
valuations to find companies that are compelling
bargains.
One company that he likes is Midway Games (NYSE: MWY).
He notes that the company is selling for under two
times book value, that the Chairman made a massive
insider purchase in January of this year, and has some
very attractive software titles including "Mortal
Combat" and "NFL Blitz."
The company was spun off from the parent about a year
ago, has missed earnings estimates for a quarter or two,
but none-the-less is a leader in the games market. They
also have a big presence in the arcade game market. Matt
notes that this is one area of the software market that
is growing strongly - and will continue to grow.
Gadzook's (NASDAQ: GADZ) is another company he likes.
Insider buying has been strong recently, and same store
sales has begun to increase after dipping for several
quarters. The company is selling at book value.
Adams Golf (NASDAQ: ADGO) is another company he finds
attractive. They have a new driver out that should boost
sales, and have a good franchise name. They went public
and institutions lost interest, and they are trading for
85% of their working capital and have no debt. This
market is very appealing and continues to grow.
Last, Omega Protein (NYSE: OME) is in the fish meal
business and owns around 80% of the market. They have
a return on equity of 33%, operating margins of 18%, a
lot of free cash, and sell for less than book value.
Longer term, this company should be profitable and a
more reasonable valuation could be attached to its
shares.
While Matt notes that these companies may not do well
over the next 3 months, longer terms they are solid
financially and have a product that should do well. He
offers a free complimentary copy of his newsletter to
readers and listeners by calling (800)-966-6567.
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6.
techstocks.com
Joe Dancy, co-editor of the IFC and editor
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
INTERNET AND ELECTRONIC COMMERCE
Start Up Internet Companies Sold For Millions
globe.com
Internet Advertising Revenues Double in 1998
technologypost.com
Content seen as the key to e-commerce success
canoe.com
The CEO of the No. 2 online broker, E*Trade,
feels when all is said and done, the vicious
competition being waged today is merely a prelude
to lucrative times ahead.
nypostonline.com
SHOP.ORG, an online retail industry association,
estimates only 1.6 percent of people who surf
e-commerce sites make purchases.
nypostonline.com
E-mail popping up in cases of divorce
mercurycenter.com
Computer Glitch at CheckFree Holdings Stymies
Bill Payers.
washingtonpost.com
SEC, NASD Probe Electronic Trading.
washingtonpost.com
PC's, NETWORKING, Y2K AND SEMICONDUCTORS
CEOs of most of the area's largest companies are
hedging their bets against a Y2K computer meltdown.
Nearly half plan to call in extra staff and back up
critical records by year's end.
chicagotribune.com
Semiconductor Sector Back On Growth Path.
technologypost.com
Consumer to be next market area for networking.
mercurycenter.com
MARKETS AND INVESTING
Is This A Stock Market Bubble?
nypostonline.com
Rules expected for electronic traders.
bergen.com
Commentary: Stock market rebound proves value of
holding in tough times.
detnews.com
Securities regulators in the U.S. are scrutinizing
the exploding online and day-trading business.
canoe.com
Buffett Still Not Sold on Tech Stocks.
nypostonline.com
Celebrity Salaries No Match for CEOS.
nypostonline.com
Buffett Says Few Stocks in U.S. Market Meet His
Purchase Test.
latimes.com
Investors, hoping worst is over, turn back
toward Asia.
globe.com
Repricing of stock options raises hackles.
dallasnews.com
Growth in traditional IRAs puzzles experts.
bergen.com
The raging bull market has spawned a hyperactive
stepchild -- day trading.
detnews.com
Internet Stocks May Provide Opportunities.
washingtonpost.com
ECONOMIC
Experts say the reality is that unusually low
inflation means workers have been taking home
better wage increases in recent years than they
have seen in many years.
chicagotribune.com
Income growth, outpacing inflation, boosts
Americans' buying power.
globe.com
Emerging Markets Are Ripe Again.
washingtonpost.com
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7.
techstocks.com
Daniel Henderson is an individual investor and an
Internet Financial Connection reader. He provides
the following commentary on ACTV (IATV 14 3/8).
Below is his write up.
With the stockmarket seeming a little out of control,
whether on the upside or the downside, as seen by
the recent tech selloff. It's nice to find a company
that holds all of the optimistic hopes people are
giving the .com companies, as well as a realistic
chance to become the next Microsoft. I say a realistic
chance because this is a speculative stock, and from
the very nature of the name it is mere speculation
that this company will become extremely profitable.
The company I am talking about is ACTV (NASDAQ: IATV).
These guys are on the frontline of Internet TV
convergence. They have the backing of John Malone's
Liberty Media, which currently owns 5% of the company
with an option to extend that to 25% in the next 5
years. They are also backed by General Instruments,
Oracle, Sun Microsystems, AT & T, soon to be renamed
Ma Cable, as well as Billionaire media mogul Rupert
Murdoch.
For me, finding a stock I feel comfortable investing
in is a process, as it should be for all investors. I
look for a company that has a product that has great
potential to create revenue. ACTV wants to be "the"
software you use in all of your TV/Internet
applications. Forget WebTV, that technology is
ancient. What ACTV wants to do, with the help of
their 13 patents on Internet convergence, is make
surfing the web and watching TV a synonymous
activity.
Let me give you three examples:
Gameshows: You're watching Jeopardy, you meet the
contestants as they are introduced, Alex makes a
little idle chatter and the game is off. You pull your
wireless keyboard to your lap as contestant one picks
a category, the question is given and contestants one,
two and three race to hit the buzzer first to answer
the question, in the form of a question of course. At
the same time home viewers type furiously to be the
first to pose their answer. All while racing against
millions of other ACTV viewers to attain a separate
prize for the home viewers, a prize being offered by
a paid ACTV sponsor. This sponsor is also just one
click of a keypad from sending you to their homepage.
With each question asked, remember there are tons of
question in Jeopardy, a new sponsor offers a prize.
Viewers compete but they also digest the names of the
sponsors, promoting brand awareness. Let's say only a
third of the viewers go to the sponsor's homepage, but
imagine how many more hits this would generate for the
sponsor. And as with the Internet now, TV convergence
will be all about the number of hits each advertisement
produces. Revenue, revenue, revenue.
Sporting Events: Imagine watching a football game, lets
say next year's Raiders/Minnesota game, where the hype
is already starting to spread about the Charles
Woodson/Randy Moss showdown. Well, through a traditional
broadcast you would follow the game, being led around
by the camera crew and the producers of the game. But
with ACTV's patented Individualized TV you'll be able
to zoom that camera in to follow the Woodson/Moss
showdown every step of the way. And if you miss the
big play because you're watching Moss fake like he's
going to receive a pass while at the same time
Minnesota's runningback Robert Smith breaks it down the
sideline for a screaming touchdown, no problem. Just
pick up the ACTV remote and rewind, pick the camera
angle you want and watch the replay as many times as
you want, all during a live broadcast. Regardless if
the network you are watching wants to replay it or not.
With each replay a sponsor's name appears, with each
camera angle another sponsor. Perhaps a sleeper
defensive player catches Smith right before he crosses
into the endzone and you don't recognize his name.
Using the ACTV remote again you pull up the players
name, statistics, where he is from and perhaps even his
favorite hobby. Throughout it all you are receiving
individualized advertisements geared for not just
generic pro football fans, but pro football fans of
either the Raiders or the Vikings based on the sex,
income and age of the viewer. Again let me repeat the
mantra: Revenue, revenue, revenue.
Television Shows: Let's say you're watching Buffy the
Vampire Slayer and you hear a great song but don't know
who performs it. Just as you ponder running to your
computer to look it up, an advertisement for the band
performing the song appears at the bottom of your
screen. This is an example of what ACTV's patented
Hyper TV allows. In essence this is a push technology,
where advertisers can push advertisements from the
Internet onto your screen. Coupled with ACTV's patented
Wolzien Process, which is a pull technology created by
Media Analyst Tom Wolzien, where viewers can pull
information from the internet onto their screen, there
is a lot of room for you guessed it, revenue. Simply
put lets say CDNow (Nasdaq: CDNW), a popular online
music vendor, pushes their advertisement to the
concerning the band they just heard on Buffy. With
pull technology the viewer can now click the
advertisement pulling them to the webpage allowing
them to make an online transaction to buy the music
CD. All from the comfort of their own home.
With this being said it is hard not to say that ACTV's
future is golden. With AT & T's forthcoming purchase
of Media One, the world's largest broadband
communication company, ACTV's future seems even more
promising, because through AT & T's support of ACTV
and the acquisition of Media One this gives ACTV even
more cable subscribers to offer their software. In
the end it is up to the rational investor to do
their own due diligence on the company and come to
their own conclusion. Whatever the choice remember
this is a long term company, don't expect record
breaking revenues next week, or even next year.
Good luck to all.
There is a thread that discusses IATV on SI.
Subject 25560
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8.
techstocks.com
DISCLAIMER: All information contained on this page are from the
authors cited. The information is believed to be reliable but
there is no guarantee to its accuracy. Stock ideas presented by
mutual fund managers, money managers, newsletter writers and SI
participants may be bought or sold by them anytime before or
after being presented in this newsletter. Anyone purchasing the
stock ideas above should consult a financial advisor before doing
so. The stock ideas mentioned above are not solicitations to buy
or sell but to provide people with information from many sources.
I (Mark Johnson editor of the IFC) am not paid any fees by the
above writers nor by the companies represented. The stock ideas
may represent a starting point for investors. People are
encouraged to do their own homework before buying any stock.
Neither Silicon Investor or the Internet Financial Connection
will be responsible for any loss occurring from
the purchase or sale of the above securities or any securities.
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