Don Green... are you wrong again?
BUT! The interview was done on 16 Nov.
Below is the Daily Briefing. Please note the date of November 22, 1999 and NOT NOVEMBER 16, 1999 And even if it was November 16 or November 22 what difference does it make. Nothing has changed since then?
BW ONLINE DAILY BRIEFING
INVESTING Q&A
November 22, 1999
Picking the Hot Tech Stocks
Players in Web access are good buys, and don't bet against Microsoft,
says U.S. Bancorp Piper Jaffray analyst Ashok Kumar
The strong flow of both institutional and retail money should keep the bull market
going, says Ashok Kumar, a senior research analyst for U.S. Bancorp Piper
Jaffray, and technology stocks, his specialty, still drive the market. In a Nov. 16
chat hosted by Business Week Online on America Online, Kumar helped investors
sort out which tech stocks have the potential to post major gains and which ones
do not. He discussed the prospects of several companies, including Dell,
Qualcomm, Lucent, and EMC. Here is an edited version of Kumar's responses to
questions from the online audience and from Business Week Online moderator
Sam Jaffe.
Q: We had another runup on the Dow today. Can anything stop this bull
market?
A:The key in a bull market is selection for outstanding performance, whereas in a
bear market timing and asset allocation are paramount. For example, 50% of the
gains in the S&P 500 in 1998 were the result of 14 stocks. The market's gain is
always a function of a handful of stocks, and we expect that to remain the case.
Q: Should I hold onto Qualcomm?
A: We believe that the infrastructure buildout for broadband wireless access is just
beginning. Today, we are seeing the rollout of 2.5 generation handsets, to be
followed by 3G handsets. To put it in perspective, worldwide PC units are
approaching 30 million units on a quarterly basis, vs. 20 million units for mobile
phones per month. So increasingly, mobile phones and mobile devices become the
primary access media for Web content.
Qualcomm is the key supplier to the wireless infrastructure buildout, so we would
recommend it as a core holding in any technology portfolio. The stock currently
trades at 100 times our calendar 2000 earnings estimate, but we think it still has
substantial upside potential. So continue to hold, and buy on weakness.
Q: What companies do you see benefiting from the spread of Net-access
appliances?
A: There are a multitude of ways to approach that theme. From a building-block
supplier perspective, the beneficiaries would include Intel, Texas Instruments,
Vitesse, PMC-Sierra, American Micro Systems, and Broadcom. Sun
Microsystems and Cisco would benefit from a systems perspective. The increased
storage requirements from e-commerce applications would reward Cobalt
Networks and Ancor.
Q: Is it a good time to buy Lucent?
A: The company has a couple of long-term positive drivers for its business,
including new-product introductions and the recent inclusion of China in the World
Trade Organization. Lucent maintains market leadership in a laundry list of
important telecommunications-equipment acronyms, and it boasts the world's
fastest growing microelectronics business, the largest communications software
group, and market leadership in carrier switching. The extraordinary strength of its
optical business continues to be underappreciated by investors. The company also
stands to be a major beneficiary of the recent U.S.-China trade agreement.
Lucent's share price represents a 70% discount to Cisco and a 35% discount to
Nortel Telecom despite superior earnings growth to either of these companies. We
would recommend buying the stock.
Q: How do you feel about Dell?
A: Dell is in the process of remaking itself. It is focusing on three growth
opportunities. The first is international expansion. Today the company is the No. 1
domestic player, with a market share of 18%. Its share outside of North America
is under 8% with opportunities in emerging markets like China and India. Dell is
the best-positioned company to capture that growth.
Two, it is focusing on the small- and medium-size business segment, where the
pricing environment is more benign than in the commercial market. Dell is also
looking to increase its service business by partnering with IBM Global Services.
The stock today trades at a discount to its earnings growth rate, vs. a 25% and
35% premium accorded to Gateway and Apple respectively, so we expect the
money flow to improve for Dell once we get into the new millennium.
Q: What is your opinion of Gateway?
A: Gateway has done a very good job of setting conservative expectations and
executing its plan. It is repositioning itself to capture a higher percentage of
peripheral sales and ISP revenues because of the dramatic declines in
consumer-desktop selling prices. The company's stock valuation has expanded
dramatically recently, given the incremental opportunity on the service side.
As Gateway positions itself to capture a higher percentage of the small- and
medium-size business segment, the prognosis for the company continues to be
attractive. It is also laying out infrastructure to capture growth opportunities in the
international markets. With positive money flow, we would expect the stock to
approach 100 over the course of next year.
Q: Is EMC a buy here?
A: Storage providers continue to be the primary beneficiaries of the e-commerce
trend. EMC has built a fortress around its market position, which is composed of
product performance software and services. It has an estimated 33% of the global
RAID market. We expect EMC to gain share, particularly in the
fiber-channel-storage and software segments, fueling 25% and 35% growth in
2000 and 2001 respectively.
Internet traffic, multimedia, and new applications that consume a large amount of
data are fueling demand for EMC's offerings. The 12-month price target of 95 is
based on a forward multiple of 57 times 2001 earnings.
Q: Is it good or bad news that Intel can't meet demand for high-end chips?
A: The supply constraints are a result of strong demand and not due to any supply
problems. We view this as positive for Intel's December quarterly earnings
performance. PC-unit demand has been strong during the current quarter and is
not being adversely affected by Y2K. Furthermore, first-quarter 2000 is likely to
show only normal seasonal PC slowness without any post-Y2K weakness. We
believe Intel's business should improve in 2000 for a number of reasons.
Stabilization of pricing, strong unit demand, improved product mix, and
dramatically lower costs should lead to enhanced earnings growth. We have a
12-month price target of 100.
Q: What do you think of Rambus?
A: We continue to see industry support for Rambus, despite the price premium. In
our opinion, DDR is not competitive with Rambus in the PC arena and will only be
implemented in the low-volume server and PC markets. We believe that the
long-term fundamentals for Rambus have not changed and that RDRAM will
become the next standard in PC memory. We expect the stock to retest its highs
of 115.
Q: What's your outlook on Microsoft?
A: We continue to believe that Microsoft's strength in the PC segment will drive
near-term results ahead of plan and that Windows 2000, coupled with BackOffice
in the data center, position the company for long-term success. This is regardless
of whatever changes take place in the content or delivery of applications. The
robust twin product cycles starting to roll out now should propel earnings for the
next two years, while Microsoft is positioning itself for Internet leadership in the
long term.
The Justice Dept. trial will in all likelihood not materially harm shareholder value,
although continuing negative trial news could cause an overhang on the stock. We
continue to recommend buying the stock.
EDITED BY LORI BONGIORNO _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
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