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The Internet Financial Connection, December 25, 1999
Happy Holidays from the IFC!
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Presented by Mark Johnson, Editor of the IFC
It appears exclusively on Silicon Investor
siliconinvestor.com
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This newsletter can be viewed at
siliconinvestor.com
In This Issue:
1. "Top Gun" technology stocks have the advantage
2. Symantec & Lam Research
3. Independent Energy Holdings & Applied Micro Circuits
4. ICH Corporation & Bradlees Inc.
5. Interesting Articles on the Internet by Joe Dancy
6. Disclaimer
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1.
"Top Gun" technology stocks have the advantage
siliconinvestor.com
Mark Johnson, Editor of the Internet Financial
Connection, provides the following interview with
John Leo of the Northern Technology Fund
northernfunds.com. AudioInvestor.com
provides an audio version of the interview.
Click the link below
audioinvestor.pyxos.com
if you would prefer to listen to the interview.
Below is the write-up.
With the technology-based Nasdaq Composite up
over 70 percent year-to-date, you might assume
the tech mutual funds have had an exceptional
year. Of course, most tech mutual funds have had
one of their best years ever and the Northern
Technology Fund is one of those funds, producing
a return north of three figures: over 110 percent
so far.
John Leo, co-manager of the Northern Technology
Fund attributes his team's success to buying the
leading companies in their respective industries.
He argues that the competitive nature of the
leading technology firms gives these firms an
edge and allows them to capture the lion's share
of the profits in their respective niche. "The
market is very unrewarding to companies that don't
keep up technologically or competitively in one
form or another," says John. "From a share price
standpoint, lagging firms wind up being punished
severely. Investors tend to reward the top one or
two companies in each niche that have a clear
leadership position... I do expect that to
continue."
Some investors are shy or afraid to invest in
the technology sector because many technology-based
products can become quickly outdated or "leap
frogged" by other companies. John recommends
that investors diversify their holdings and own
a basket of technology companies or a mutual
fund to minimize risk. Another way to minimize
risk, he mentions, is to focus on companies
that are leading the charge or at the leading
edge in terms of being competitive with products
and service. "Investors should not try to bet
on turnarounds or companies that have stumbled.
That tends to be a failing strategy within the
technology sector."
John does not claim to be a market timer in
any way but would not be surprised to see a
pullback in the technology sector sometime
within the next few weeks. He thinks that if
there is a correction, it could be followed by
a relief rally as investors push money back
into the tech area.
One of the common themes John favors is the
communications area. He believes that theme
will continue to be a strong one that investors
will focus on in 2000. In the wireless
communications services area he likes Nextel
Communications (NXTL 105) and Sprint PCS
(PCS 101 1/4). "We believe those two companies
will experience rapid growth over the next
few years."
In the Web-hosting area, he likes Exodus
Communications (EXDS 85) because it is the
leader in the outsource Web delivery area for
Internet companies, which is growing rapidly.
On the communications equipment side, the
Northern Technology Fund has a strong
commitment to JDS Uniphase (JDSU 298), which
makes components for optical networking
solutions.
John thinks the communications semiconductor
side of the communications area has a lot to
offer simply because there are "high and very
focused levels of investments" being made by
companies that are building out Internet and
corporate networks. "It is important to
remember that telecom networks in our country
and around the world are changing materially,
moving from voice-centric markets and moving
into more robust markets that can handle a
variety of information. To accomplish this
expansion of bandwidth, companies need new
capabilities in terms of the semiconductor
content. In many cases, the demand for these
products is outstripping what some of these
semiconductor companies can supply. That is
a good problem to have." A few companies he
particularly likes in the communications
semiconductor area include: Broadcom
(BRCM 245 3/4), Conexant (CNXT 67 3/4) and
Vitesse (VTSS 51 5/8).
In the B2B (business-to-business) space,
John likes the players who are helping
organizations and enterprises become
Internet-enabled and interface with clients
effectively. "Businesses need to transform
from a brick-and-mortar type of delivery
system to an ecommerce system. Organizations
need to be compatible with the world of
tomorrow, which is electronic commerce."
He is high on BEA Sytems (BEAS 70 7/8),
Siebel Systems (SEBL 89 1/8) and BroadVision
(BVSN 153). Those companies provide
different tools that help businesses roll
out "an effective ecommerce offering."
The Northern Technology Fund has greatly
reduced its exposure in some of the hardware
sectors within the tech area. Specifically,
those are the PC box companies and hard
disk-drive companies. John explains that
he is avoiding those areas of the market
because "the computing platform is moving
away from a desktop, PC-centric platform
and moving toward an Internet browser
platform. We are trying to make sure our
portfolio reflects that shift in power."
John mentions the importance of the
technology industry within the global
economy. He thinks that every investor
should have some reasonable exposure to
the technology industry. "The tech sector
is driving a lot of change within the
economy and is far and away the greatest
engine of growth within the economy." He
recommends owning a diversified basket of
companies or a technology mutual fund.
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2.
Symantec & Lam Research
siliconinvestor.com
Harvey Bateman of Sirach Capital Management
sirachcap.com provides the
following stock ideas. Below is the
write-up.
Harvey Bateman, Director of Equity
Investments for Sirach Capital Management,
a $7-billion money manager in Seattle,
Wash., focuses on companies that exhibit
strong earnings-growth characteristics.
These include strong quarterly earning
growth, accelerating earnings growth and
earnings surprises. Two companies that
Harvey and his investment team recently
included in their large-cap growth portfolio
are Symantec (SYMC 63 3/4) and
Lam Research (LRCX 108 1/4).
Symantec is best known for its Norton
Utilities software that provides antivirus
and security solutions. Harvey elaborates
that around six months ago, Symantec brought
in a new CEO, John Thompson, from IBM and
brought a new focus to the firm. In the
past, Symantec had ventured into other
areas besides the security area. John has
brought a new focus to the firm. He plans
to divest some of the other businesses and
focus on the security and antivirus part
of the market.
Symantec will be unveiling two new products
in next year's first quarter. One of those
products is a firewall-based software
product for consumers and the other is a
Unix version of its popular antivirus
software. Harvey notes that the market for
security-based software is growing at a
35-percent-plus rate and believes Symantec
will be able to increase its market share.
Symantec is expected to earn $1.97 for the
fiscal year ending in March of 2000 and
$2.36 in fiscal 2001. He thinks its shares
can move into the $80 area sometime within
the next six to 12 months.
Lam Research is another company Bateman is
high on. Lam is a maker of semiconductor-
processing equipment used by many of the
major chip manufacturers. Lam's niche is
in the etch market and has developed a
well-known process called Chemical Mechanical
Planarization (CMP). It has recently
introduced a new product called Exelan,
"which is well-received."
He adds that the book-to-bill ratio for the
semiconductor industry is strong and his
analysis suggests that it is still early in
the semiconductor cycle. Lam is expected to
earn $2.92 in year ending in June of 2000
and $3.53 in 2001. He thinks those estimates
are low. He sees the stock possibly
appreciating 30 percent over the next
six to 12 months.
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3.
Independent Energy Holdings & Applied Micro Circuits
siliconinvestor.com
Alex Motola of Insight Capital Research &
Management icrm.com, provides
the following stock ideas. Below is the
write-up.
In 1998, the U.K. deregulated its energy
markets. Alex Motola of Insight Capital
Research & Management notes that people
living in the U.K. are not inclined to
stay with the incumbent energy supplier.
One reason is that the bureaucracy in the
past between energy users and suppliers
created uncomfortable conditions.
One company Alex finds attractive and will
directly benefit from the deregulation of
energy in the U.K. is Independent Energy
Holdings (INDYY 31 1/2). It is the largest
independent marketer of energy in the U.K.
It primarily resells electricity and also
provides natural gas to customers. Alex
mentions that INDYY plans to drive natural
gas sales by selling it to the company's
electrical customers, offering a single
bill and a single energy provider. "The
overall opportunity is very large."
Part of INDYY's strategy is to go after the
most-profitable customers, which include
small businesses,industrial and residential
customers who consistently use a large
amount of energy. INDYY has about 200,000
customers and is adding new ones at a rate
of about 7,000 per week, so "growth has
been excessive." Alex figures INDYY will
earn about 85 cents in the fiscal year
ending in June of 2000 and $1.30 in fiscal
year 2001. He views the company's stock as
"cheap" and thinks it can move into the
$40 range.
In the technology area, Motola likes
Applied Micro Circuits (AMCC 118), the maker
of high-performance telecom integrated
circuits. He explains that Applied Micro
has its own fabs and is able to meet
production requirements. Other companies
that outsource capacity have had trouble
at times keeping up with demand because
certain components have been hard to
find and in short supply.
Alex insists that Applied Micro sits at
the higher end of the food chain and does
not produce commodity products. Its
clients include: Lucent, Nortel, Juniper
Networks and Sycamore Networks. "Applied
Micro is clearly the premier chip play on
fiber-optic networking. Nortel's fiber
business has grown from $1 billion last
year to $3.5 billion this year and is
expected to grow to $10 billion next year.
Applied is tied and designed into Nortel's
fiber franchise and into most of the
telecom equipment providers." He admits
that Applied's shares are expensive on
a P/E basis but states, "The business
momentum is clearly unbelievable!" He
thinks its stock will move higher as
business fundamentals remain strong.
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4.
ICH Corporation & Bradlees Inc.
siliconinvestor.com
John Keeley of the Keeley Small Cap Value
Fund (888-933-5391), provides the
following stock ideas. Below is the
write-up.
John Keeley of the Keeley Small Cap Value
Fund is devoted to finding companies that
are restructuring, spin-offs of other
companies, trading under book value and e
merging from bankruptcy. John states that
companies, particularly in the value area,
are sensitive to rising interest rates. He
believes that once investors start to cash
in hefty gains made from the high-tech
growth stocks, which have had a phenomenal
run so far this year, "Some of that money
will be reallocated into the smaller
companies and that bodes well for the
sector."
One company John favors is ICH Corporation
(IH 10 3/8), which emerged from bankruptcy several
years ago. It operates 185 Arby's restaurants
and 73 Lyon's restaurants. Keeley finds a lot
of value in ICH because it trades at less
than seven times this year's earnings estimate
of $1.50 and about five times fiscal 2000
earnings of $1.85. He points out that ICH
posted revenues of about $225 million in the
last four quarters, and its stock's total
market capitalization is valued at $28 million,
along with a $6 book value. John believes that
ICH's stock could double from present levels.
Another company John likes is Bradlees Inc.
(BRAD 8) owns and operates 104 discount
department stores in the Northeast. The
company is managed by Peter Thorner, who
led Ames Department Stores out of its troubles
several years ago. Bradlees has come out of
bankruptcy and started to open new stores
for the first time this year.
Keeley figures Bradlees will post a loss of
81 cents in the fiscal year ending in January
of 2000 and will earn between 15-20 cents in
fiscal 2001, "which is a dramatic improvement
in operations!" Bradlees has annual revenues
of $1.3 billion, while its stock market
capitalization is around $80 million and has
a book value of $4 per share. He thinks the
company's stock will be able to trade in the
$12 range once earnings get back on track,
and it is recognized by the Street.
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5.
Interesting Articles on the Internet
siliconinvestor.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
The number of US Internet users has increased 600
percent - to 56 percent from 9 percent of all
Americans - over the past four years, a new
Harris Poll says.
globe.com
Consumers looking to do some holiday gift-buying
on-line this year stood a good chance of having
their shopping sprees thwarted by an assortment
of Web glitches, according to a report by Andersen
Consulting.
technologypost.com
A major report just published suggests that,
contrary to popular belief, Europe is not that
far behind the United States in terms of usage of
the Internet for business.
technologypost.com
A string of Internet-retail partnerships announced
this week promise to heat up competition among
the major Internet access providers, resulting in a
barrage of bargains for the millions of Americans
still off-line, industry analysts say.
washingtonpost.com
On-line securities investors soon may be able to
trade without paying commission according to
PricewaterhouseCoopers.
technologypost.com
A recent study shows that just 46 per cent of
households making under US $40,000 a year were
on-line. That compares to 81 per cent of households
raking in more than $80,000 and 78 per cent of
college graduates who use the Internet.
technologypost.com
It's only a matter of time before Wall Street loses
confidence in the trendy dot.com companies' game plans
for making money, warned a world-renowned "long-term"
market bull.
detnews.com
Though it seems everybody's getting on the Web these
days, two-thirds of Americans have yet to do so
because of the expense or because their communities
lack easy access.
triblive.com
UPS was expecting its biggest day of the year
Friday - perhaps its biggest day ever - as shipping
companies hustled to deliver the record number of
Christmas gifts being ordered over the Internet.
dallasnews.com
While Web-only players continue to grow at breakneck
speed, offline chains that have set up shop online
are giving them a run for their money.
mercurycenter.com
INTERESTING AUDIO PROGRAMS ON THE INTERNET
Mark Alch, financial consultant, discusses wealth
management concepts in his new book "How to Become
a Millionaire" - and why the market is such a
powerful wealth building tool.
audioinvestor.pyxos.com
MARKETS AND INVESTING
Investors who are sitting on shares of some of
the highest-flying technology stocks are
doubtless wondering whether it's time to sell.
detnews.com
Ralph Acampora, the raging bull of Wall Street,
said yesterday the Nasdaq composite index could
hit 5,000 by the end of next year. That would
mean the technology-packed average would add
another 35 percent gain next year to the 78.37
percent return is already picked up so far
this year.
nypostonline.com
After a disastrous 1998, international funds
started staging a comeback in 1999, and are
now poised to truly take advantage of recovering
world economies in 2000.
nypostonline.com
When America Online Inc. and Wal-Mart Stores
Inc. announced a new venture Thursday to bring
the Internet to Wal-Mart's millions of customers
in small-town America, Wall Street shrugged
it off. Old News.
washingtonpost.com
After 12 years as chairman of the Federal
Reserve Board, Alan Greenspan is looming over
the presidential election. In both the Republican
and Democratic fields, the candidates are
split over whether he should keep his job.
mercurycenter.com
If your mutual fund has gained about 15 percent
so far this year, which is about the average,
and you're pleased with that, then here's a
little investing tip: Don't look at the
performance of the Nasdaq stock market.
bergen.com
Roughly 70 IPOs have appreciated from their
offer price by 500 percent or more, 40 by
700 percent or more and a staggering 30 by
more than 1,000 percent, according to a
listing provided by Bloomberg News. Beneath
the numbers, as Merrill Lynch's Bob Farrell
noted, is the telling reality that half of
the stocks in the S&P 500 were down for
the year.
washingtonpost.com
Alarmed by a growing wave of corporate mergers,
a Minnesota Democrat fumes that Congress and
the country are standing by as giant corporations
combine, leading to vast concentrations of
economic power.
mercurycenter.com
BIOTECH, SEMICONDUCTORS, AND Y2K
The meeting of the world's major industrial
powers and leading developing nations, known
as the Group of 20, was designed to show that
rich countries now recognize the need to
cooperate with poorer ones to stop financial
turmoil from sweeping across the globe.
iht.com
Some of the government's Y2K watchers are
warning of computer problems on New Year's Eve
that may arise not from the date rollover, but
from pranks committed by mischievous hackers.
washingtonpost.com
Coming soon, to a chip near you, your own
genes. The biotechnology industry, which has
long lived in the shadow of Silicon Valley and
envied its many overnight successes, is now
tapping into that same technology in a bid
to speed up its own growth significantly.
mercurycenter.com
The future looks bright for Alza Corp., say
biotech analysts, despite this week's collapse
of the Palo Alto company's deal with Abbott Labs.
mercurycenter.com
Perceiving little chance of major disruptions
from the millennium computer bug, most Europeans
are stocking up on champagne for New Year's, not
canned soup and flashlights.
detnews.com
ECONOMICS
The insatiable American appetite for imports is
building up imbalances in the economy that will
make the nation vulnerable to a sudden loss of
confidence among the foreign investors who
finance the trade deficit, some experts warned.
chicagotribune.com
The week after global trade talks collapsed in
Seattle, India's commerce minister rose in
Parliament here to denounce what he called a
pernicious attempt by the richest, most powerful
nations to rob developing countries of
their great advantage in trade: cheap labor.
mercurycenter.com
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7.
siliconinvestor.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 or the company they
represent 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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