To thread, nice little article from Cramer and some Jubak bits.
TheStreet.com
Cramer on discovering the stock market's New World
By James J. Cramer 12/27/1999
When the history is written about the stock market, we will remember 1999 as if it were 1492 and the New World had just been discovered. No, I'm not being hysterical or dramatic -- I save that for the TV persona. In fact, I even know the date the New World was discovered: Aug. 26, 1999.
Almost everyone reading this story at this moment has no idea why one day we will celebrate that date as if it were Columbus Day. John Chambers knows. So do Mary Thurber, Larry Carter, Don Listwin and Kevin Kennedy. You'd better learn those names, while we are writing history. Those are the sailors on the Nina, Pinta and the Santa Maria. They are the Cisco (CSCO) execs who took us to the New World when, on Aug. 26, 1999, they bought Cerent, a brand-new company, two years old, with only 287 employees. They found the New World when they issued 100 million shares for this drawing-board company that makes next-generation optical transport products that take, symbolically and literally, Old-World communications companies and their voice connections into the New World of voice/data transference over the Internet.
Big deal? You bet it was.
On Aug. 26 this year the scales fell from our eyes. Before the discovery of the New World, we thought, at Cramer Berkowitz, that this whole crazy Nasdaq thing was just a big bubble, blown by the good folks at Janus and Amerindo. We figured it was simply the work of the Greater Fool theory. I guess you could say that we thought the stock market was flat. Now we knew it was a globe!
With this purchase, worth $7 billion in a stock that this decade appreciated a lot more than the U.S. dollar, all of us who believed that the Nasdaq was just an aberrant bubble were proved wrong. Why was this purchase so seminal? First, let's establish a benchmark. I have never hidden my desire to try to relate this stock business to sports. I do it because I look at the guys who run these businesses that have made me a ton of money as if they were the real heroes, not the spoiled bums of pro sports. The Gehrigs and the Ruths of this era wear Cisco jerseys or Intel (INTC) sweats. They play in Sun Micro > (SUNW) pinstripes or sport Yahoo! (YHOO) hats or Microsoft (MSFT) helmets. And, in case you doubt the veracity of my case, how much money has Tim Duncan made you? Or John Rocker? Or Derek Jeter? Now we are on the same page.
So when someone from my personal pantheon, who has shepherded his stock to the front of the line during this era, shells out $7 billion of his closely guarded treasure for a newcomer, it forces me to re-evaluate my negative stance.
Chambers, you see, paid that much because he knew that the stock market would value Cerent much more highly if it came public independently and he would never get its technology, which might hold the key to tens of billions of sales in the out years. You could say that the stock market forced Chambers' hand. If Chambers -- who knows more about what makes a start-up company worth billions than just about anybody who has ever lived -- believed these valuations aren't going away, then who am I, a lowly stock-picker, to disagree with him?
Chambers had discovered and verified the New World with this purchase. Perhaps he had seen that he could have bought Redback (RBAK) or Brocade (BRCD) or Juniper (JNPR) (and yes, I am long all three because of this move, as I would not have been before it) for billions in stock and looked like a genius in retrospect. Perhaps he knew that he had to have this technology to be a winner and that meant shelling out his most precious currency. It really didn't matter. As we former historians know, trying to figure out the psychology behind why Lincoln did this or Franklin D. Roosevelt did that is a futile task best left for the lightweights.
What mattered is he did it. And with that, all of these crazy valuations became validated valuations. And all of these stocks that we were ignoring became must-owns.
I know I'm not the only one who feels this way. The tech funds all got it. As did Amerindo. As did Janus. But everybody else? They're still living in 1492 in my book. They still think the world is flat. Which is why, when you pick a fund, or a stock, ask yourself: Are these guys believers in the Old World or the new? If they are believers in the latter, then they might look back and say, yep, 1999 was the year Chambers and company sailed the ocean blue and discovered Cerent, forever changing the way we look at the stock market.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Brocade Communications, Cisco, Intel, Juniper Networks, Microsoft, Redback Networks and Sun Microsystems. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at jjcletters@thestreet.com.
¸ 1999 TheStreet.com, All Rights Reserved.
moneycentral.msn.com
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Jubak, 28 Dec 99
I'll take Cisco's word for it
On Dec. 20, Cisco Systems (CSCO) announced that it would buy the optical-systems business of Italy's Pirelli for about $2.2 billion. The deal puts Cisco into the dense-wave division multiplexing market for the first time, where it's in competition with such companies as Lucent Technologies (LU) and Ciena (CIEN). Pirelli's current customers include Global Crossing (GBLX) and Deutsche Telekom (DT). Cisco intends to integrate Pirelli's OC-192 optical transport systems with optical products acquired in recent purchases of Cerent, Pipelinks and Monterey Networks to grab a piece of an optical-networking market that Cisco estimates will reach $40 billion by 2005.
Stocks moving at the speed of light
Cisco Systems' Pirelli deal virtually guarantees that Nortel Networks (NT) will stay on the acquisition trail, as the two companies seem to be playing leapfrog in an effort to gain an edge in the optical-networking market. The Pirelli purchase by Cisco comes hot on the heels of Nortel's acquisition of Qtera, which was itself a response to Cisco's deal for Cerent. Qtera, a Florida-based start-up, has technology that allows signals to travel up to 2,500 miles on an optical network without a need to convert photons to electrons to boost the signal. The current limit is about 400 miles. Much of the cost in building an optical network is due to the need to convert and boost the optical signals periodically. Any network equipment that reduces that need and cost would have a big edge in the market. Qtera's products, now in testing, are expected to hit the market in mid-2000. I think this is a great deal for Nortel Networks. As of Dec. 28, I'm raising my target price on the stock to $115 by May 2000 from the previous $95.
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