a good list of stocks to follow.
Twelve Tech Stocks for the Next Ten Years
[BRIEFING.COM - Robert Walberg] December is not only the biggest shopping month of the year, but it is also the biggest month for list making. There's the holiday wish list; the new year's resolutions list; the lists of year's best movies, songs, athletic moments, etc; and, of course, in our business, the list of top stock plays. Though common sense tells us to leave the crystal ball stuff to Jean Dixon and the Psychic Network, we can't help ourselves. So today, Briefing.com embarks upon the ambitious task of identifying twelve technology stocks that will not only lead the technology revolution into the next millennium, but will reward investors with superior long-term gains.
Sustaining success over a ten year period is a difficult task for any business, but especially so in the rapidly changing technology sector. Consequently, the top criterion for inclusion in the list was quality management. We also looked for companies with a history of rapid sales growth, industry dominance, proprietary technologies and/or explosive industry growth potential. Company financials also played an important role in the decision making process. Given the lengthy time horizon we placed less emphasis on "value."
We then took these criteria and applied them to the assumption that technology is moving from being PC-centric to Net/Communications-centric. This helps explain why companies which dominated the 90s such as Dell (DELL), Intel (INTC) and Microsoft (MSFT) didn't make our list, even though they met most, if not all, of the standards. But let's not waste any more time talking about who didn't make the grade, and let's turn our attention to the dozen companies who, like Chuck Yeagger, have the right stuff.
The Big Boys - Market Caps Over $100bln
* America Online (AOL) Along with Yahoo! (YHOO) company is the top branded site on the Net, and by now it's too late for newcomers to knock them from their perch... In selecting between the two, our strong belief in Steve Case and AOL's superior financials won out... International expansion, growth in ad revenues, e-commerce potential and huge subscriber base all point to continued success.
* Cisco Systems (CSCO) Here's an example of a tech titan that isn't cheap... But investors more than willing to pay a premium price for this networking giant given predictably robust top- and bottom-line growth... And John Chambers has proven time and time again that he understands the business better than his competitors... Considering the explosive growth of the Net and demands it has placed on upgrading the telecom infrastructure, CSCO well positioned to sustain its eye-popping growth for years to come.
* MCI/Worldcom (WCOM): The leading telecom services company in the world today, and if it receives FCC approval of its Sprint (FON) acquisition, it will cement that position for the foreseeable future... Company's just beginning to leverage diverse product offerings into rapid earnings growth... Though integration of FON will take time, management has proven that it knows how to get the most from its many acquisitions.
* Sun Microsystems (SUNW): While we aren't certain whether company can sustain its current momentum throughout the decade, no doubt they are hitting on all cylinders at the moment... And McNealy is one of those guys you just don't bet against... As long as he remains at the helm of this ship, Briefing.com expects SUNW to dominate the fast-growing server market... Company's services and storage revenues also ramping up nicely.
Charging Hard (Market Caps of between $40-$100 Bln)
* Applied Materials (AMAT): The chip industry expected to experience explosive growth over the next several years, and one of the chief beneficiaries will be leading chip equipment maker - Applied Materials... With over $2bln in cash and one of the top CEOs in the tech universe AMAT also well-positioned to ride out the usual industry cycles without suffering much damage... However, with demand expected to far outpace supply over next few years investors shouldn't have to worry about a slowdown anytime soon... Given industry dominance, strong financials and quality management team, stock remains attractively priced relative to tech giants noted above.
* JDS/Uniphase (JDSU): Virtually unknown two years-ago, JDSU has exploded on the scene as the leading player in the fast-growing fiber-optics equipment market... With the Net's explosive growth driving demand for increased bandwidth, we see no let up in the burgeoning demand for the building blocks of fiber-optic networks... We aren't alone, as the street expects JDSU to post average annual growth over the next five years of 46%... Management remains aggressive in building its leadership position, as evidenced by the recently announced $2.8 bln acquisition of Optical Coating Labs (OCLI)... The deal will expand JDSU's product line and should help speed product development... For the equipment companies the goal is to be a one-stop shop, and by bringing OCLI into the family JDSU takes another big step toward achieving that goal.
* Qualcomm (QCOM): Speaking of exploding onto the scene, QCOM's stock has skyrocketed in 1999, as demand surged for its CDMA (code division multiple access) wireless technology... More than 35 million subscribers now use CDMA phones worldwide, and QCOM is there to collect the royalties... While it will be impossible for QCOM to duplicate its 1999 performance ever again, we are impressed by management refusal to sit still and bask in the glory... To the contrary, company busy shedding lower margin businesses to focus on higher margin businesses like its next-generation wireless data technology... Its newest technology, High Data Rate (HDR) is being touted for its low cost and high speed... The HDR technology will work with fixed and mobile devices such as cellular phones, handheld computers, and wireless modems for laptops... The incremental nature of the HDR upgrade means that it will be cheap for carriers to adopt, making its chances for success all the greater... Solid financials, innovative, aggressive management team and position at the center of the explosive Net/wireless boom suggests that QCOM will remain a top performer.
Up & Coming (Market Caps between $5-$40bln)
Here's where the risks are the greatest, but if we are right and these companies build on their early leadership positions the rewards should be outstanding.
* Commerce One (CMRC): As noted in today's other Stock Brief entitled "B2B IV: Let's Get Horizontal," CMRC is Briefing.com's favorite choice in the nascent, but potentially explosive B2B horizontal marketplace... What's meant by horizontal is that CMRC wants to benefit from B2B transactions across a broad cross-section of industries, whereas a "vertical" focuses on a specific industry... Company's BuySite platform offerings include the requisitioning of goods and services, travel management, and expense management... BuySite links to MarketSite, Commerce One's B2B marketplace... And what elevates the company above the rest in this field has been its aggressiveness in developing a global online marketplace... It's GM contract was a major coup... Other customers include British Telecom, Cable&Wireless, Eastman Kodak, Pepsico, Weyerhauser and Warner-Lambert... Stock trades at steep p/s multiple but considering that company posted year/year revenue growth last quarter of better than 1300%, and has doubled revenues sequentially in each of the past three quarters, the premiums are understandable.
* Healtheon/WebMD (HLTH): Admittedly a long-shot play, but the stock has come back to life after the recent approval of the four-way merger between Healtheon, WebMD, MEDE America and MedCast... Investors now looking at how the synergies will benefit the company over the long haul... Let's face it any company that can help cut the bureaucracy and waste out of the country's bloated, cumbersome healthcare system has a huge upside... Briefing.com contends that HLTH is well positioned to do just that... Improving technicals, solid management and relatively high brand awareness, all work in the company's favor.
* Hughes Electronics (GMH): Too bad we didn't prepare this list a couple months back prior to the recent run by the satellite service providers... GMH, along with the rest of the group, rallied ahead of, and now after, President Clinton signed the Satellite Home Viewer Improvement Act of 1999 that allows satellite service providers to offer local channels... Removal of big stumbling block v. cable, positions satellite service providers for significant growth... The Hughes-Primestar-USSB system has 7 million subscribers, a number that should now grow rapidly... Wider acceptance of digital satellite service, also increases the potential for satellite-based broadband Internet access... And the possibility of two-way satellite broadband service in a couple of years makes the prospects for GMH even more enticing over the long-term... Briefing.com also sees GMH as a potential takeover candidate.
* PMC-Sierra (PMCS): Tough picking between PMCS, Broadcom (BRCM), Conexant (CNXT) and RF Micro Devices (RFMD), but combination of faster revenue growth, slightly discounted valuations, top management team and impressive relationships/client list tipped selection to PMCS... Obviously competition is intense, but demand in the communications chip marketplace is tremendous, and we see no material let-up for several years to come... Consolidation in the industry is likely, with the winner set to be the next Intel (INTC)... Or will Intel end up being the next Intel?
* Vignette (VIGN): Leading customer relationship management (CRM) software company's products help to facilitate ecommerce and, as such, participates in both the B2B and the B2C (business-to-consumer) sectors... Of the CRM plays, Vignette offers the broadest platform and has the customer list to prove it... Counted among its customers are American Express (AXP), Lycos (LCOS), Land's End (LE), CBS, Hewlett-Packard (HWP), AT&T (T), Nokia (NOK) and Sun Microsystems (SUNW)... VIGN's key product is StoryServer, which offers content management, personalization and decision support... Other products include Syndication Server, which enables businesses to manage integrated customer chains, and Multi-Channel Server, which when released next year will enable businesses to distribute content over other media, such as phone, email, fax, wireless, and mail... Though richly priced at over 60x sales, company's promise and performance (year/year sales growth last quarter of 458.7% with 63% sequential growth) suggests to us that investors will continue to pay a premium... Briefing.com contends that the CRM sector will be huge, and will ultimately be dominated by a few players... VIGN is the best bet to be one of those players.
Robert Walberg |
