| The Internet Financial Connection, May 13, 2000
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Presented by Mark Johnson, Editor of the IFC
It appears on Silicon Investor
siliconinvestor.com
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This newsletter can be viewed at
siliconinvestor.com
In This Issue:
1. Top-performing tech fund favors bandwidth, storage and wireless
2. Flamel Technologies
3. ClickAction
4. A.C.L.N. Limited & Interstate National Dealers
5. Interesting Articles on the Internet by Joe Dancy
6. Disclaimer
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1.
Top-performing tech fund favors bandwidth, storage and wireless
siliconinvestor.com
Malcolm Fobes of the Berkshire Focus Fund and the
Berkshire Technology Fund berkshirefunds.com
(1-877-526-0707), provides the following interview
with Mark Johnson, Editor of the Internet Financial
Connection. Below is the write-up.
"Concerns of inflation and higher interest rates
may keep the markets choppy for awhile," states
Malcolm Fobes, manager of the Berkshire Focus Fund
(BFOCX), the Berkshire Technology Fund (BTECX) and
sub advisor to the newly launched Wireless Fund
(WIREX). He mentions that from a seasonal point
of view, the technology sector is entering the
slower summer months. "For the long-term investor,
the current tech correction is one of the greatest
buying opportunities you are going to get... This
is a perfect entry point!"
Before investing, Fobes takes a step back and looks
for the "big trends" in the stock market. "We take a
macro approach and look for trends in the marketplace
where we see the greatest amount of growth. Clearly,
technology is where we think the best growth is going
to be for many years to come. Once we identify the
trends, we will go in and take a bottom-up approach
and look for companies that are going to be the leaders
in these trends."
Fobes is focusing on three trends within the technology
sector: bandwidth, storage and wireless communications.
In the bandwidth space, he is focusing on companies that
are building out the Internet infrastructure. Cisco
(CSCO 60 1/4) is a key holding and a leading networking
solutions provider that is directly benefiting from this
buildout. Other related favorites include Redback
Networks (RBAK 58 1/8) and Juniper Networks (JNPR 148).
According to Fobes, the next step is to look for firms
that are supplying components and semiconductors to
companies like Cisco, Nortel and Lucent. PMC-Sierra
(PMCS 147) was a top holding in the Berkshire Focus
Fund and the Berkshire Technology Fund in 1999 and
continues to be this year. PMC-Sierra is a maker of
high-performance semiconductors that format streams
of data entering a network. Broadcom (BRCM 148 1/8)
is the dominate supplier of semiconductors used in
cable set-top boxes. Other top holdings in the
semiconductor space include Applied Micro Circuits
(AMCC 98 7/8) and Transwitch (TXCC 68 3/8). In the
fiber optics realm, a few names Fobes finds attractive
are JDS Uniphase (JDSU 86 1/2) and SDL (SDLI 181 3/4).
In the storage area, Fobes leans toward EMC (EMC 125 1/2),
which has been a major holding in the Berkshire Focus
Fund for quite some time. EMC is the premier name in
data storage and is poised to ride the storage trend.
Network Appliance (NTAP 58) specializes in what is
known as Network Attached Storage (NAS). The end result
of a NAS system is a fast, simple, reliable and
cost-effective file service for data-intensive network
environments. Veritas Software (VRTS 89 3/4) manages
data storage and guards networks against data loss.
Fobes notes that wireless is a new and emerging area.
Like most companies he invests in, Fobes prefers to
invest in the leaders in wireless as well as companies
that are supplying components to the leaders. In the
cellular handset market, Ericsson (ERICY 19 3/8) and
Nokia (NOK 52 1/8) are a couple of names he finds
appealing. Qualcomm (QCOM 99 3/8) is a leading provider
of digital wireless communications products,
technologies and services based on its Code Division
Multiple Access (CDMA) technology.
A few companies Fobes is high on and that are
supplying components to leading wireless companies
include: RF Micro Devices (RFMD 97), TriQuint
Semiconductor (TQNT 90 1/2), Conexant Systems
(CNXT 40 5/8) and Analog Devices (ADI 59 7/8).
Inktomi (INKT 121) and Infospace (INSP 48 3/4) are
two companies Fobes points to as becoming large
players in wireless. "Surprisingly, most people do
not think of these companies as wireless companies,"
he says. "Inktomi is positioning itself to take
advantage of the tremendous growth in wireless. Its
technology enables data transfers through wireless
devices, the same way that it does through the
Internet." Infospace allows people to access data
from cellular handsets. "Infospace is positioning
itself in the wireless arena going forward."
The Berkshire Focus Fund was up an astonishing 104
percent in 1998 and 142 percent in 1999. Fobes states,
"For investors who have not gotten into technology,
this is a perfect entry point. Historically, corrections
in the technology sector were buying opportunities...
It's no different this time around. Long-term investors
that are patient will be well rewarded."
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2.
Flamel Technologies
siliconinvestor.com
Hossein Ekrami of Sturza's Medical Investment
Letter sturzas.com, provides the
following stock idea on Flamel Technologies
(FLMLY 6). Below is the write-up.
Flamel Technologies (based in France) is a
drug-delivery company engaged in the development
and commercialization of controlled-release
therapeutic products based on its proprietary
polymer technology. Presently, the company has
a number of new products under development.
Flamel is working with Novo Nordisk, one of the
world's leading insulin makers. The two companies
are developing a long-acting human insulin based
on Flamel's technology.
Hossein Ekrami of Sturza's Medical Research
explains that present versions of long-acting
human insulin tend to produce wide fluctuations
of blood insulin and glucose levels. Flamel's new
version is expected to produce a smooth release
profile of insulin in the blood, reducing wide
variations in blood glucose levels. Ekrami notes
that long-acting insulin accounts for over 50
percent of the $2.5 billion worldwide insulin market.
Flamel has already developed another product called
Genvir. Genvir is a longer-acting derivative of a
medication called Acyclovir, used in the treatment
of genital herpes. Genvir only has to be
administered twice daily. Acyclovir (also called
Zovirax) is administered five times a day. Ekrami
notes that Flamel should file for European approval
of Genvir sometime in the third quarter of this year.
He adds that Flamel is in discussions with several
pharmaceutical companies to market the new product
in Europe.
Flamel, in collaboration with Corning, has developed
new materials to be sold by Corning to manufacturers
of polymer-based photochromic lenses. Photochromic
lenses are lenses that change color in the presence
of UV light - becoming darker when outdoors and
clearer when indoors.
"Flamel is a small company but has a number of new
developments, as well as many collaborations," states
Ekrami. He sees the company becoming profitable in
the first quarter of 2001 and with earnings of 48
cents in 2002. He thinks the company's stock could
hit $20 within 12 months.
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3.
ClickAction
siliconinvestor.com
Paul Zweng of Palo Alto Investors provides the
following stock idea on ClickAction
(CLAC 11 1/8). Below is the write-up.
The Internet sector of the market has not been
a favorite for many investors lately. A stiff
correction in technology stocks and a seasonally
slow period for the Internet space has caused a
sharp pullback in many high-flying Internet names,
including: America Online, Yahoo!, DoubleClick
and ClickAction.
What?..... So, you've never heard of ClickAction?
The shares of ClickAction hit a high of $35 1/2
in March before giving up ground and landing in
the $10 range. ClickAction is a direct marketer
of permission-based email services primarily for
the online retail market. Some of ClickAction's
clients are well-known names such as: Wards, Dean
& Deluca and Legg's. Click here to view the company's
client list.
"There is a tremendous opportunity for companies
to reduce costs by supplementing traditional mail
advertising with online email campaigns" says Paul
Zweng of Palo Alto Investors. "A traditional catalog
sent by bulk mail can cost between 75 cents and $1.50,
whereas an email-based promotion can cost as little
as 3 cents per email... It's an incredible cost
savings. In addition, a catalog usually takes over
six weeks before it has an effect. In contrast, the
impact of an email campaign is felt in 24 to 72 hours.
A client could launch an email campaign on the 20th
of December and expect it to increase Christmas sales."
Zweng notes that when a person offers his or her email
address to a Web site to receive promotions,
newsletters or other offerings, the person is commonly
prompted to specify his or her individual interests
by filling out a short questionaire or profile. This
results in much higher click-through rates than typical
banner ads (18-80 percent for email ads vs. less than
1 percent for banner ads), and thus explains why email
direct-ad campaigns are more effective. "People click
on these emails because they have requested the
information contained in them", Zweng says, "whereas
no one requested the banner ads".
ClickAction's technology is very user friendly,
enabling its clients' marketing groups to design, send
and manage their own email ad campaigns. The company's
new release allows its clients to measure, store and
data mine the results in real time. "Their demo to
potential clients is very impressive", says Zweng,
who has sat through a number of them. ClickAction then
receives a fee for each email that is sent out.
Zweng adds that ClickAction's revenues are fairly
visible and the company is seeing strong support for
its service. The companies that use ClickAction's
email-based service continues to increase, as do the
number of emails being sent by each business. "We
checked into over 20 of ClickAction's clients. We
discovered that ClickAction's customers really like
their product. They especially love the demonstrable
return on investment." ClickAction sports impressive
partners including BEA Systems and Broadvision.
Zweng expects ClickAction to post break-even results
in the third quarter of this year and to earn 6 cents
in the fourth quarter, assuming no acquisitions.
"Gregory Slayton, ClickAction's CEO, is very focused
on shareholder value and wants to see ClickAction
move into the black this year. Given how far he has
moved this company forward since taking over in late
1997, I think he can do it", he says. Zweng thinks
the stock could well double or triple from present
levels within the next 12 months.
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4.
A.C.L.N. Limited & Interstate National Dealers
siliconinvestor.com
Scott Hood of First Wilshire Securities
fwresearch.com, provides the following
stock ideas. Below is the write-up.
A.C.L.N. Limited (ACLNF 27 1/4) is a marine logistics
company that specializes in the international
shipping of automobiles. Most of the company's
business is conducted transporting second-hand
vehicles from Europe to the African market.
Scott Hood of First Wilshire Securities is bullish
on the shares of A.C.L.N. Limited. He states that
the demand for affordable cars in Africa far exceeds
supply. "A.C.L.N. is directly benefiting from the
insatiable demand for affordable automobiles."
Presently, no cars are being manufactured in the
African countries they service. A.C.L.N. handles
the majority of the used cars transported into
Africa from their European ports.
Another reason why Hood is high on A.C.L.N. is
because Hyundai, a world leader in water freight
shipping, agreed to outsource all Europe-to-Africa
automobile shipping to A.C.L.N.
In 1999, A.C.L.N. shipped automobiles from one
European port. The cars would then be received
by about 10 African sea ports. In order to keep
up with demand, A.C.L.N. has increased the number
of European sea ports transporting cars to Africa
from one in 1999 to the five largest this year.
In many developing markets, such as South America
and the Caribbean, there is a high demand for
affordable cars. Government restrictions have put
a damper on the number of autos entering many of
these countries. Scott notes that these restrictions
are slowly being lifted. "I wouldn't be surprised
to see A.C.L.N. shipping cars to an entirely new
continent sometime in 2001," he says.
A.C.L.N. has "accumulated a hoard of cash." It
increased cash from $5 million in 1994 to $78
million 1999. Hood figures that A.C.L.N. will have
well over $100 million in cash by the end of this
year. The total market capitalization of A.C.L.N.'s
stock is currently $225 million.
A.C.L.N. has compounded earnings growth over 40
percent in the last four years and earned $2.62
in 1999. Scott thinks the company will earn $3.50
to $4 this year. He believes that A.C.L.N. will
be able grow earnings at an annual rate of over
30 percent during the next five years.
Scott interestingly points out that the PE
(price-to-earnings) multiples of other ocean
freight shipping companies such as Expeditors, Air
Express and Circle International carry an average
PE multiple of 24 times this year's earnings.
"If A.C.L.N. traded at the same PE multiples
those companies trade for, its stock would be
trading at $70 per share."
Another company Hood favors is Interstate National
Dealers (ISTN 5), a company featured in the
'Forbes 200 Fastest Growing Companies'. The
company's main business is selling warranties
for new and used automobiles. Hood mentions
that the company has $3 per share in free cash
and $10 per share in total cash while the stock
trades around $5 per share. The company has
added $2 per share in cash each year for the
last several years.
About five months ago, a group solicited an offer
to buy ISTN for $9 per share. ISTN politely
rejected the offer and started a share buyback
program of 500,000 shares. "ISTN believes their
stock is worth a lot more than what was offered...
They have a low PE, no debt, tons of cash, and
the company is buying back its own stock." Hood
figures ISTN will earn 60 cents this year and
that its stock should be trading much higher than
what the market is assigning it. "With the high
levels of cash and no debt, ACLNF and ISTN are
beneficiaries of higher interest rates."
------------------------------------------------------------------
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, TECHNOLOGY, AND ELECTRONIC COMMERCE
Nearly four in 10 U.S. home buyers used the
Internet last year to shop for a house--an
18-fold increase in four years, according to a survey
released Tuesday by the National Association of Realtors.
washingtonpost.com
The dot-com world is not an automatic licence to
print money, says billionaire Bob Young,
Canadian-born co-founder and CEO of Red Hat Inc.
"The press misses this all the time," he said in a
telephone interview last week. "They look at the huge
amount of money that the winners make and treat it as
a tech gold rush. But not all the miners looking for
gold will win. Only a few wilL."
canoe.com
Everything's not coming up roses these days for the
online flower business. Stock prices have fallen
precipitously, financing for Internet retailers has
dried up, and competition is growing -- everybody and
their e-brother, it seems, is going on the Web to
hawk flowers and gifts.
bergen.com
Employees of the best-known consulting firms are
leaving for Internet start-ups, forcing the
button-down advisers to re-evaluate incentives.
chicagotribune.com
Sales of personal computers in Japan jumped more than
30 percent to a record 9.94 million last business
year, reflecting Japan's growing appetite to surf
the Net, industry data showed on Tuesday.
techweb.com
Venture capitalists began the year believing that
the Internet remains the World Wide Windfall -- a
perception that industry leaders say probably will
not change soon.
bergen.com
Cooling interest in Internet stocks is unlikely to
stem the flow of investment bankers seeking a new
job in Net startups.
technology.scmp.com
Recent surveys show that the Internet has increased
more in popularity among those older than 45 than
any other age group. Many believe it's partially
because grandchildren are taking the time to introduce
their elders to the new technology.
detnews.com
INTERESTING AUDIO PROGRAMS
HomeCom Communications announced that revenues increased
161% last year and CEO Harvey Sax and CFO Jim Ellsworth
are interviewed about the company, their products, and
the outlook.
audioinvestor.pyxos.com
MARKETS AND INVESTING
As baby boomers age and accumulate wealth, they'll
increasingly need asset-management services.
detnews.com
Despite boom times, some are choosing to spend less
and really take charge of their lives.
globe.com
Globe-trotting financier George Soros warned
yesterday that the recent erosion in US share values
suggests that the United States is already in the
grip of a bear market.
globe.com
With just one word -- buy, sell or hold -- a Wall
Street analyst can change a company's fortune/
detnews.com
ECONOMICS
A common complaint of opponents of globalization is
that it leads to a ''race to the bottom.'' By this
they mean that governments, especially in developing
countries, compete for foreign investment by lowering
labor and environmental standards so that multinational
corporations will be attracted to the country with the
least onerous requirements. The competition, in this
view, puts downward pressure on global standards.
iht.com
As the euro tumbled below 90 cents this week, Europeans
seemed hurt, bewildered, even anxious. So much so
that Willem F. Duisenberg, head of the European Central
Bank, today issued an extraordinary message to citizens
assuring them that the condition of their newborn
currency was not as dire as it looked.
washingtonpost.com
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6.
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. Writers and editors of the IFC publication may own
positions in the securities mentioned above. Positions may be
liquidated at any time. 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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