RIMM mentioned as one of ten best in very select company...
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Volume 23, Issue 12 Date: December 1999
TEN GREAT BLUE CHIP INTERNET STOCKS
December 1999
December and January have been the two best months of the year for the stock market over the past 50 years.
Consequently, time is running out for a severe market correction to unfold. However, the risk of a correction will
continue to hang over the market because market valuation remains at record levels. What created the current
market overvaluation? Essentially three things:
1) Record creation of money by the Fed to help liquefy the global financial system that was slipping into deflation
during 1997 and 1998.
2) An increasing flood of pension fund contributions which are invested into the stock market because it is the
single best investment alternative available. 3) An increasing flood of money has been chasing a decreasing supply
of stocks. The number of shares available for purchase has been declining relentlessly since 1996 because
corporations have been purchasing their own shares, which lowers P/E levels and helps push stock prices higher.
Millions of shares also disappear when corporations are acquired or merge. Why didn't the market correct
valuation levels in October, the month of panics and crashes?
The economies in Europe, Canada, Latin America, Japan and Southeast Asia unexpectedly emerged from
recessions or experienced faster than expected economic growth. Foreign investment in U.S. Internet related
stocks continues to rise every quarter. An unprecedented flood of money from the Fed, from pension funds, and
now from Asia, Japan, Latin America and Europe, must go somewhere. .
Investors both here and abroad apparently perceive Internet stocks as the safest place for investment funds
because the future growth of the Internet is unlimited.
That is the only possible reason to justify purchasing AOL with a P/E of 332, Yahoo! with a P/E of 471 or Cisco
Systems, the bluest of the blue chip stocks, with a P/E of 102. Rising global liquidity has substantially reduced the
danger of a global financial crisis. But again, the risk from outrageous overvaluation of the U. S. stock market is
still with us.
Fed chairman Greenspan has raised this question numerous times: "Have we reached new valuation levels that are
permanent or are they temporary.
If they are temporary, investors are vulnerable to substantial risk and loss." No one knows the answer to this
all-important question. It could be months or even years before this question is finally answered. With that
understanding of risk and possible loss, lets look at the potential for profits over the next six months.
Over the past 50 years, 90% of the profits from the stock market have occurred between November 1st and
May 1st. This is the basis for the old Wall Street adage: "Sell in May and Go Away," which the pros have been
doing for years.
The remaining 10% occurred between May 1st and November 1st. A radical change in pension fund laws has
altered this pattern. Over the past five years, 95% of the profits have occurred between December 1st and June
1st. Hence, the best six months of the year is upon us, so let's position ourselves to take advantage of this pattern.
In our November issue we presented "Ten Companies that will Revolutionize the World."
This month we are presenting "Ten Great Blue Chip Stocks." These twenty stocks should be accumulated now
and should be considered core holdings.
Don't sell them unless and/or until their technologies or business plan becomes obsolete. We'll let you know when
and if that happens. We are summarizing our list of Blue Chip stocks on page 15. At the risk of redundancy,
please note the P/Es for each company. The P/E ratio for the S & P 500 is currently at 24. However, only 50 of
the S & P 500 stocks are rising in price; the other 450 are down for the year. Wall Street apparently believes the
P/E levels are justified because of rapid sales and earnings growth.
The twenty companies that we are recommending to you are among the fastest growing and most profitable
companies on the NYSE and NASDAQ.
Plus, these companies offer cutting edge technologies that are essential to the rapid growth of the Internet. The
rapidly growing army of Internet users around the globe complain that WWW stands for "while we wait." Above
average sales, profits and market share will flow to the 20 companies we have recommended to you because
their technologies will solve the "while we wait" problem and eventually make Internet access and usage 100
times faster than it is today. Where is the Internet headed?
Within a year or two wireless/satellite technologies will allow computers, cell phones and pagers to be
continuously connected to the Internet 24 hours a day.
Plus, many of our recommended companies will allow instantaneous connection to the Internet and rapid
movement between Web sites. The Internet is the best investment opportunity of all time. Enormous profits will
unfold to the investors who own the right Internet stocks. D. R. Hardin, Independent Consultant and Director of
Investment Research for The Wall Street Digest is monitoring a list of almost 300 Internet stocks, up from 72 a
year ago. This list grows daily.
The twenty stocks that survived a rigid elimination process should produce unusual profits with the least possible
investment risk over the next six months.
On July 16th, the S & P 500 Index was overvalued by almost 50%. The correction that followed reduced
overvaluation to 34%. However, the current rally has pushed overvaluation back up to 45%. With the best six
months of the year for the stock market upon us, valuation can only rise to new highs. Study the chart above
carefully. The sobering message for investors is obvious.
Overvaluation levels have always been corrected back to the norm. Chairman Greenspan continues to ask: "Have
we reached new permanent levels of valuation?
The twenty-one stocks that we have recommended to you are the companies that will lead the global revolution
into the wireless/satellite, Internet, telecommunications era. As such, they are in a better position to withstand a
severe correction that is sure to come eventually. Any pull back will be a buying opportunity for these stocks.
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AMERICA ONLINE (NYSE: AOL)
Founded in 1985, America Online, (NYSE: AOL) is the world's leader in interactive services, Web brands,
Internet technologies, and e-commerce services. AOL operates two worldwide Internet services. America
Online, with more than 19 million members, and CompuServe with more than 2 million members. AOL
International, operates the AOL and CompuServe services outside the United States.
As the interactive medium becomes a global mass market phenomenon, AOL International is leading the way
with aggressive access and marketing programs in China, Japan and Southeast Asia, where one-third of the
world's population resides.
Since the launch of AOL's first international service in Germany in 1995, the AOL and CompuServe services
outside the United States have surpassed 3.2 million members, making AOL International the number one global
Internet online service. Today, AOL International operates the AOL and CompuServe branded Internet online
services in 12 countries and in five languages. Through a combination of AOLNet, AOLGLobalnet and other
networks, America Online offers the largest dial-up network in the world, with access in more than 100 countries
and 1,500 cities.
Through its strategic alliance with Sun Microsystems, the company develops and offers businesses operating in
the Net economy easy-to-deploy, end-to-end e-commerce and enterprise solutions under its iPlanet alliance.
America Online is the world's first $2 billion dollar multi-brand media company and has taken a leadership role in
developing the new interactive medium. Third quarter earnings were up 250%; sales were up 47%. Company
headquarters: Dulles, VA. Phone: 703-265-1000. (Source: www.aol.com)
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CISCO SYSTEMS (NASDAQ: CSCO)
Cisco Systems (NASDAQ: CSCO) is the worldwide leader in networking for the Internet. Cisco's networking
solutions connect people, computing devices and computer networks, thus allowing people to access or transfer
information without regard to differences in time, place or type of computer systems. Cisco serves customers in
three target markets. Enterprise: Large organizations with complex networking needs, usually spanning multiple
locations and types of computer systems. Enterprise customers include corporations, government agencies,
utilities and educational institutions.
Service Providers: Companies that provide information services, including telecommunication carriers, Internet
Service Providers (ISPs), cable companies and wireless communication providers. .
Small/Medium Business: Companies with a need for data networks of their own, as well as connection to the
Internet and/or business patterns. Cisco develops its products and solutions around widely accepted industry
standards. In some instances, technologies developed by Cisco have become industry standards themselves.
Cisco also aggressively acquires new companies with leading edge or breakthrough technologies.
Since shipping its first product in 1986, the company has grown into a global market leader that holds the number
one or number two market share in virtually every market segment in which it participates.
As measured by market capitalization, Cisco is among the largest in the world with sales of $8.6 billion in 1998.
Third quarter earnings were up 41%; sales were up 49%. Company headquarters: San Jose, CA. Phone:
408-526-4000. (Source: www.cisco.com)
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CONEXANT SYSTEMS (NASDAQ: CNXT)
Conexant Systems (NASDAQ: CNXT) is a leader in the development and manufacturing of system level
semiconductor solutions that use mixed signal processing technology to combine complex analog and digital
functions on smaller and smaller pieces of silicon. The company's specialized expertise in signal processing
algorithms, communications protocols, and signal conversion technology has provided it with the technical
underpinnings to deliver system solutions in a variety of diverse, yet interrelated communications markets.
CNXT is a $1.2 billion company that began operation as an independent entity in January 1999 after Rockwell
International Corp. spun off its Rockwell Semiconductor Systems Business to shareholders. Today, Conexant
Systems is a top ten North American semiconductor company.
CNXT is also the largest company in the world that is focused exclusively on providing semiconductor products
for communications electronics. Conexant is one of the few companies that can deliver the higher performance,
mixed signal intensive semiconductor systems solutions that the industry requires in order to meet today's
exploding demand for new communications products and increased communications bandwidth. Conexant has a
strong foundation as one of the leading forces behind today's multi-billion dollar fax, modem and wireless
communication marketplace.
For more than 30 years, Conexant has pioneered innovations that have changed the way the world
communicates. Third quarter earnings were up 115%; sales were up 71%. Company headquarters: Newport
Beach, CA. Phone: 949-483-4600. (Source: www.conexant.com)
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EMC CORPORATION (NYSE: EMC)
EMC (NYSE: EMC) is the world's leading provider of enterprise storage systems, software and services. EMC
Enterprise Storage intelligent disk arrays, software products and services is the information storage and
management solution of choice for every major computing platform in today's business enterprise. EMC is the
recognized "time to market" leader in delivering advanced storage and retrieval technology to companies whose
success depends on rapid access to and transmission of information.
Major customers include the world's largest banks and financial services firms, telecommunications providers,
airlines, retailers and manufacturers, as well as governments, universities and scientific institutions.
These industry leaders rely on EMC's storage solutions for such applications as online reservation systems,
transaction processing, customer billing, year 2000 compliance, the Internet and corporate intranets, business
disaster recovery, data mining and data warehousing. EMC is represented by more than 100 sales offices and
distribution partners in more than 50 countries.
In addition, EMC has formed alliances with the world's leading software, application and database companies,
including Microsoft, SAP, Oracle, Baan, and PeopleSoft.
EMC is a Fortune 500 company and was ranked ninth on "Business Week's 1998 Info Tech 100" list of the
world's best performing information technology companies. In February 1999, Fortune magazine identified EMC
as the driving force behind one of the ten tech trends for investors to watch. Third quarter earnings were up 53%;
sales were up 33%. Corporate headquarters: Hopkinton, MA. Phone: 508-435-1000. (Source: www.emc.com)
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HARMONIC, INC. (NASDAQ: HLIT)
Harmonic Inc. (NASDAQ: HLIT) designs, manufactures and markets communication systems for delivering light
wave and digitally based video, audio and data via hybrid fiber/coax (HFC), satellite and wireless networks.
These products enable cable television and other network operators to provide broadcast and interactive,
broadband services, such as Internet access and video on demand. Worldwide, cable television and other
broadband services are undergoing dramatic growth.
In regions where these systems don't yet exist, designers are bypassing traditional architectures and moving
directly into hybrid fiber coax (HFC) networks.
Harmonic's flexible hardware and proprietary software permit easy integration of evolving technologies which
enables the communication industry to incorporate new products into existing systems. This facilitates easy,
economical system upgrades and significantly reduces equipment obsolescence. The use of HFC lowers
maintenance cost, increases network reliability and improves signal quality. It also increases revenue by
dramatically increasing the number of video channels, as well as allowing a range of other communication
services.
Optical fiber can transport both analog and digital signals, with a capacity for 80-110 analog channels or 500
compressed digital channels.
HFC's superior capacity and two way capabilities allow cable television networks to offer new high speed
interactive services that combine video, voice and data. The market for fiber optic transmission and digital video
compression equipment is expanding rapidly, both in the U.S. and internationally. Harmonic, Inc. is in an excellent
position to take advantage of and influence the trends shaping today's broadband communications technologies.
Third quarter earnings were up 675%; sales were up 135%. Company headquarters: Sunnyvale, CA. Phone:
408-542-2500. (Source: www.harmonicinc.com
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R F MICRO DEVICES (NASDAQ: RFMD)
R F Micro Devices (NASDAQ: RFMD) was founded in 1990 to develop Integrated Circuits (IC) solutions for
the wireless communications industry. Today, R F Micro Devices designs, develops, and markets modems,
mixers, transceivers, and amplifiers used in wireless communications equipment. The communications equipment
produced by R F Micro Devices is used in pagers, cellular telephony, wireless LANS (local area networks),
wireless security systems, and other high technology communications equipment.
Only RFMD harnesses three different process technologies for radio frequency wireless applications: bipolar
silicon, gallium arsenide (MESFET) and advanced heterojunction bipolar transistors.
This allows RFMD to match the right technology to industry radio frequency applications, giving unparalleled
process efficiencies and cost benefits. RFMD integrated circuits are fabricated using state of the art process
technologies from external foundries, which permit the choice of the optimum process technology for a given
application and provides the capacity to service high volume requirements. Low cost offshore assembly is used,
thus providing substantial cost savings and virtually unlimited capacity.
R F Micro Devices is rapidly expanding it's capabilities to design, manufacture and market its products to meet
the growing demands of the wireless communication market.
A worldwide explosion of cellular phone sales and the race to provide wireless Internet access continues to
turbocharge RFMD's sales and earnings. Third quarter earnings were up 400%; sales were up 119%. Company
headquarters: Greensboro, NC. Phone: 336-664-1233. (Source: www.rfmd.com)
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RESEARCH IN MOTION (NASDAQ: RIMM)
Founded in 1984, Research In Motion Limited is a leading designer, manufacturer and marketer of innovative
wireless solutions for the mobile communications market. Through development and integration of hardware,
software and services, RIMM provides solutions for seamless access to time sensitive information, including
email, messaging, Internet and intranet based applications.
RIMM technology also enables a broad array of third party developers and manufacturers in North America and
around the world to enhance their products and services with wireless connectivity.
RIMM's portfolio of award winning products includes the RIM Intor@ctive Pager 950, RIM 850 Wireless
Handheld, BlackBerry wireless email solution, wireless personal computer card adapters, embedded radio
modems, and software development tools. By the year 2000, the number of people using pagers is expected to
grow beyond 200 million worldwide. Breakthroughs in two-way messaging products by Research In Motion are
helping to shape the dynamic future for mobile communications and connectivity. .
RIMM's advanced manufacturing processes and custom components mean two way paging is now possible with
small wearable devices.
RIMM's patented wireless data technology delivers products so sensitive they provide coverage in locations
previously unreachable. Third quarter earnings were up 400%; sales were up 241%. Company headquarters:
Waterloo, Ontario, Canada. Phone: 519-888-7465. (Source: www.rim.net)
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SUN MICROSYSTEMS (NASDAQ: SUNW)
Sun Microsystems (NASDAQ: SUNW) is in virtually every field from manufacturing to financial services,
telecommunication to education, retail to government, energy to healthcare. Sun Microsystems is helping
companies "dot com" their business processes to leverage the power of the Internet. Sun Microsystems was
founded with a driving vision of computers that talk to each other no matter who built them. Sun Microsystems
has reached this goal with its widely adopted Java technology used in everything from smart cards to
supercomputers.
By providing high speed microprocessors and high performance software, Sun Micro has been able to raise
productivity and to reduce both cost and complexity.
To facilitate innovation and provide world class support for its global client base, SUNW is structured as six
divisions, each providing open standard products and services for commercial and technical computing. The six
divisions that make up Sun Microsystems include: Computer Systems (hardware); Enterprise Service (service
and training); Software Products and Platforms; Microelectronics (microprocessors); Network Service Provider;
and Network Storage. During 1999, nearly 50% of Sun's revenue came from non-North American sales.
To serve its international customer base, Sun has 45 offices around the world providing full sales, marketing,
service, and technical support.
Sun Microsystems has positioned itself as a leading provider of service and support solutions for building and
maintaining computer networks around the globe. Third quarter earnings were up 32%; sales were up 25%.
Company headquarters: Palo Alto, CA. Phone: 650-960-1300. (Source: www.sun.com)
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XILINX (NASDAQ: XLNX)
Xilinx is the leading innovator of complete programmable logic solutions. Founded in 1984, Xilinx invented the
Field Programmable Gate Array (FPGA) and commands more than half the world market for these devices.
Xilinx FPGAs provide a revolutionary alternative to custom logic chips that require weeks or months of design
time. As a fabless semiconductor company, Xilinx does not own or operate silicon wafer production facilities.
Rather, the company forms strategic alliances with chip manufacturers, either through close business relationships
or equity positions in their foundries.
This strategy allows XLNX to focus on research and development, as well as marketing and technical support,
while having access to the most advanced chip processing technologies currently available.
In the digital world, there are two types of electronic chips: memory and logic. Memory chips are used to store
information. Logic chips are used to manipulate or interface with the information contained in the memory.
Programmable Logic Devices (PLDs) are "off the shelf" logic chips that the customer, (rather than the chip
manufacturer) programs to perform a specific function. With the ability to program their own chips, customers
realize two key benefits: product design flexibility and faster time to market.
With today's shorter product life cycles, both of these factors can be critical determinants of a product's ultimate
success.
Electronic equipment manufacturers rely upon PLDs to make fast design changes, accommodate uncertain
production volumes, and accelerate their product's introduction to the marketplace. Process technology is the key
to producing faster, denser, lower power, lower cost devices, and XLNX's current technologies are among the
best available. Third quarter earnings were up 84%; sales were up 53%. Company headquarters: San Jose, CA.
Phone: 408-559-7778. (Source: www.xilinx.com)
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YAHOO! (NASDAQ: YHOO)
Yahoo! (NASDAQ: YHOO) is a global Internet media company that offers a branded network of media,
commerce, and communication services to more than 100 million users worldwide. As the first online navigational
guide to the Web, www.yahoo.com is the leader in terms of traffic, advertising, household and business user
reach and is one of the most recognized brand names associated with the Internet.
Yahoo! provides online business services designed to enhance Yahoo! clients' web services, including audio and
video streaming, store hosting and management,
Some of the companies working with Yahoo! include: 1) Healtheon, which provides premier content and online
marketing designed to give consumer research capabilities and access to some of the most respected healthcare
information on the Internet. 2) Phoenix Technologies which has an agreement to offer immediate Internet access
to millions of new online PC users. 3) Autoweb.com which has an agreement to provide users with direct access
to Autoweb.com's comprehensive new and pre-owned automotive buying service.
4) Pagenet which has an agreement to provide pager users with wireless access to personalized content, Yahoo!
Mail and Yahoo! Calendar. These represent just a few of the impressive list of companies working with Yahoo!.
Yahoo! is still the leading navigational guide to the Internet and continues to develop a family of community
services along with targeted Internet guides for geographic, demographic and shared interest audiences. Yahoo
Japan is also the front door to Asia, home to one-third of the world's population. Third quarter earnings were up
600%; sales were up 134%. Company headquarters: Santa Clara, CA. Phone: 408-731-3300 (Source:
www.yahoo.com)
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