Financial Post Investing
Go for top in network firms
Sonita Horvitch
12/23/1999
National Post
National
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(c) Copyright 1999 Financial Post from National Post (formerly The
Financial Post Company). All rights reserved.
Although the stocks of leading tech companies that are committed to
enhancing the speed and capacity to deliver voice, video and data
worldwide have done exceptionally well, they can still go higher, says
Rolie Bradley, institutional salesman at Toronto's Maison Placements
Canada Inc.
The installation of the fibre-optic cable networks in North America,
Europe and Japan "will take the current Internet communications system
from the Model T stage to the Formula One stage."
For example, users of the Internet will be downloading movies, videos
and music in a matter or minutes or even seconds, he says.
The increasing demand for these companies' technology is the reason
their stocks are attracting so much attention from investors.
On the valuations, Mr. Bradley notes that the price-to-earnings
multiples on the top companies in this medium are high. Some of these
companies do not even generate earnings. But the stocks have the
potential to go higher, given the growth in Internet use.
Mr. Bradley chose the following leaders in what he calls a
"revolutionary communications" field:
- Nortel Networks Corp. (NT/TSE), which had a recent close of $146.40
and trades in a 52-week range of $147 to $36.90. This Brampton,
Ont.-based tech company designs and builds networks that blend routing,
optical, wireline, wireless, switching and Internet Protocol
technologies. Consensus earnings estimates are $1.07 (US) a share for
1999 and $1.32 (US) for 2000.
- Lucent Technologies Inc. (LU/NYSE) $79 15/16 ($84 3/16-$47). (All
figures for Wall Street issues are in U.S. dollars.) Based in Murray
Hill, N.J., Lucent designs and builds a wide range of public and private
networks, communications systems and software, data networking systems,
business telephone systems and microelectronic components. Consensus EPS
forecasts are $1.52 for the fiscal year to September, 2000 and $1.83 for
fiscal 2001.
- Cisco Systems Inc. (CSCO/NASDAQ) $104 ($105-$44 15/16). The San
Jose, Calif.-based firm develops high-performance multi-protocol
networking systems for computer integrated networks. Consensus EPS
forecasts are 99 cents for the fiscal year ended July, 2000, and $1.27
for fiscal 2001.
"These are three major companies that have a substantial commitment to
research and development," Mr. Bradley adds.
He also likes:
- Global Crossing Ltd. (GBLX/NASDAQ) $54 7/16 ($64 1/4- $18 15/16).
Based in Hamilton, Bermuda, the firm provides global Internet and
long-distance telecommunications services via a network of digital
fibre-optic underwater cable. The consensus is calling for a loss of 21
cents a share in 1999 and 47 cents for 2000.
- Level 3 Communications Inc. (LVLT/NASDAQ) $83 13/16 ($100 1/8- $37
1/8). Based in Broomfield, Colo., the firm is building a global
communications network using Internet Protocol technology. Level 3's
network will combine local, long-distance, and underwater networks to
connect customers across the United States, Europe and Asia.
This summer, Nortel won a major three-year contract from Level 3 to
supply advanced fibre-optic equipment. There is also an alliance between
the major North American telecom companies -- Nortel, Lucent, Cisco,
Hewlett Packard and Level 3 -- to develop a solution to connect the old
technology of voice circuits to the new packet (data) networks. "This
will be a major breakthrough," Mr. Bradley says.
Level 3 is expected to record losses this year and next. Consensus
forecasts are for a loss of $1.67 a share in 1999 and $2.99 in 2000.
- Qwest Communications International Inc. (QWST/NASDAQ) $44 ($52
3/8-$21 7/16). Denver based Qwest is a fibre-optic communications
company that is "committed to achieving a very significant increase in
the ability to ship huge amounts of information." Consensus earnings
estimates are 11 cents a share for 1999 and 33 cents for 2000.
- Covad Communications Group Inc. (COVD/NASDAQ) $55 ($81- $12). Based
in Santa Clara, Calif., the company provides high-speed Internet and
networking access through digital subscriber lines.
The company is expected to generate losses of $2.96 a share this year
and $4.90 in 2000.
- AtHome Corp. (ATHM/NASDAQ) $47 1/8 ($99-$33 1/8). Redwood City,
Calif.-based AtHome provides Internet services via cable television
infrastructure and leased digital communications lines to consumers and
businesses. The consensus is for a loss of 5 cents a share in 1999 and
profit of 18 cents in 2000.
Mr. Bradley recommends taking profit in Ottawa-based software firm
Corel Corp. (COR/TSE) $27.10 ($64.65-$3.05). He says "the enthusiasm for
the Linux operating system, which Corel is selling, has carried the
stock to unsustainable levels."
Chart/Graph: FP Datagroup / CISCO SYSTEMS: CSCO/NASDAQ: Dec. 22:
US$102 1/2 -$1 1/4, Vol.: 15,177,700: (See print copy for complete
chart/graph.) |
