Here is a list from TSCN of their 10 HeavyWeights for 2000
Many of The Usual Suspects on this list.
Stocks in Focus Jan 3 2000 2:45PM CST Archives...
The WallStreetCity Select Ten
by Blair G. Jeffery, Margaret Medina, Don Diaz, Charles Rotblut, Gardner Landry, Chris Connor & Theo Spradlin
The Wall Street City Select Ten is a portfolio of stocks that are expected to outperform the broader market averages over the course of 2000. These securities were selected by group consensus among the entire team of Wall Street City analysts and editors on the basis of business models, underlying fundamentals, and technical strength. In general, all of the stocks listed below represent companies that are either current market leaders or are positioned to capitalize on rapid growth in specific sector niches.
The portfolio was constructed with an investment horizon of twelve months and does not involve the use of options or other hedging instruments. Although diversification was considered, it was not a determining factor as the goal of this portfolio is to provide investors with a list of outstanding investment candidates that warrant further research.
Company Ticker Price* Comment
Cisco Systems CSCO 107-1/8 Cisco is dot com
Broadcom BRCM 272-3/8 Pulls the strings on broadband technology
PMC Sierra PMCS 160-5/16 PMC Sierra semiconductors improving the speed and performance of the Internet
Sun Microsystems SUNW 77-7/16 Dot.coms its way to dominance
JDS Uniphase JDSU 161-5/16 The empire of fiber optics resides in JDSU's court.
EMC EMC 109-1/4 The Storage Tank for the Internet's data geyser
Wal-Mart WMT 69-1/8 Consumer e-commerce category killer.
Nokia NOK 191-1/16 Wireless giant with the capacity to grow even more.
General Electric GE 154-3/4 Original Dow component well positioned to take advantage of Internet growth.
Texas Instruments TXN 96-5/8 The king pin of Digital Signal Processing (DSP)
* price as of 12/31/99
THE LIST
Cisco Systems, Inc. {CSCO}
Cisco ranks as the largest of all the Internet stocks. The company shows a market capitalization of almost $357 billion - almost double that of the second largest Internet company - America Online Inc. {AOL}. That demand has driven this stock to a five year gain of 2,800 percent is very important as institutional and private investors alike scramble to position themselves in the facilitating technology companies of the Internet. More than 2,700 institutions hold some 60 percent of the 3.4 billion CSCO shares outstanding. Thirty analysts give the stock a mean buy, hold, sell rating of 1.3 - a buy. CSCO scores a five-year annualized projected earnings growth rate of 29.6 percent, in the top twenty percent of all companies, but just below the computer-networks industry average. CSCO is the largest Internet company by market capitalization, and its industry is projected to grow earnings at a rate of almost three times that of the S&P 500.
This bellwether Internet company pulls in the lion's share of its revenues from the computer networks and Internet industries. CSCO has substantially increased revenues for thirteen consecutive operating quarters, and for FY '99, ended July 31, 1999, the company brought in $12.19 billion in revenues resulting in earnings of $0.62 per share. CSCO shows an intensification of its earnings trend with a three-year EPS growth rate of 26.6 percent and a one-year EPS growth rate of 47.6 percent. The current trend in the technology of interconnectivity implies that CSCO will continue with its present rate of EPS growth.
Most importantly, CSCO shows solid fundamentals. The company reports no long-term debt and a superior return on sales of 15 percent. CSCO shows a return on assets of 15.2 percent and a return on equity of 19 percent - all three of these scores rank CSCO in the top ten percent of all stocks with respect to fundamental returns. With a projected earnings growth rate for the next year of only 32.4 percent, a current P/E of 176, and a projected P/E ratio of 83.5, Cisco has already seen the market price in its projected earnings. However, CSCO appears to be in demand with investors, and rolls into this new year in new all-time high territory - again. CSCO scored a new all-time high in ten of the last twelve trading months. The company showed controlled steady growth, which is not indicative of Internet stocks this year, but finished up by some 125 percent. CSCO is a stock to watch for continued steady growth and solid fundamentals into next year.
Broadcom Corporation {BRCM}
Broadcom ranks as the fifth largest Internet stock by market capitalization. The company shows 104 million shares outstanding, and at its current valuation, BRCM is worth approximately $28 billion. The stock has gained more than 30 percent in the last year, and investor demand has driven BRCM to trade at a valuation of almost 500 times earnings. Twenty-one analysts give BRCM a mean buy, hold, sell rating of 1.6 - a buy rating. Ten analysts offer an average five-year projected earnings growth rate of 48.5 percent - a growth rate twice that of its industry group, and four times that of the S&P 500.
BRCM has grown revenues and earnings exponentially. The company earned $0.045 per share on $21 million in revenue for the entire FY 1996. In the first nine months of FY 1999, ended September 30, BRCM pulled in $357 million in revenue resulting in earnings of $0.41 per share. Some investors deem earnings growth this strong (more than 900 percent in less than three years), that is expected to continue at a rate of almost 50 percent annually for the next five years, to justify a P/E ratio of 500.
BRCM manufactures and designs integrated circuits for broadband communications. BRCM participates in the set-top box, cable modem, high speed network, direct broadcast satellite and terrestrial digital broadcast markets, and the digital subscriber line (DSL) industry.
PMC Sierra {PMCS}
PMC-Sierra, Inc. supplies networking semiconductors for four different product protocols: Asynchronous Transfer Mode (ATM), SONET/SDH, T1/E1/J1, T3/E3/J2, and Ethernet. Over the next ten years, data traffic is expected to comprise 98 percent of all networking traffic, with voice traffic making up the remaining two percent. The high bandwidth required to transmit increasing volumes of data is being driven by three factors: growth of the Internet, corporate networks and remote access. The impetus propelling the increase in Internet traffic is e-commerce, and with Internet traffic is doubling every 100 days and the growth of e-commerce expected to generate $1.3 billion by 2003, high speed bandwidth is imperative. {PMCS} stands to benefit from the need to build more efficient networks to handle the increased data traffic.
EPS for the third quarter of 1999 increased by 316.6 percent to $0.25 from $0.06 per share. Revenues of $181.8 million for the nine month period through September have already surpassed total FY 1998 revenues of $161.8 million. For the nine month period ended September 30, 1999, revenues increased 56 percent - up from $116.3 million for the same prior year period. Net income through September 1999 totaled $67.5 million compared to a loss of $15.6 million. Gross profits increased to 79 percent of net revenues versus 76 percent for the previous nine month period. EPS estimates for the quarter ended in December of 1999 are estimated to be $0.27. Earnings for FY 2000 are projected to be $1.27, and $1.67 for FY 2001. Earnings growth is projected to grow at an annual average growth rate of 40 percent over the next five years. As of September 1999, the company had $173.6 million in cash and no long-term debt.
The company has a diversified customer base of over 100 customers with only two of those, Lucent and Cisco, accounting for more than 10 percent of revenues in 1998. PMC-Sierra expects equipment upgrade cycles to continue over the next twenty-five years as networking companies continue to look for devices that increase the speed and efficiency of data transmitted over various network protocols.
Sun Microsystems {SUNW}
Best known for their workstations and JAVA technology, Sun Microsystems {SUNW} provides a wide array of products from servers to workstations to software. Over the past decade, the company has enjoyed an annual average revenue growth rate of 20 percent, an annual average EPS growth rate of 33 percent and an annual average growth rate in operating income of 37 percent. As of the end of FY 99, the company had no long term debt and cash of $2.6 billion.
Sun dominates many of the markets it serves - it is the leader in UNIX servers, accounting for 30 percent of total servers shipped in the first quarter of FY 99. Sun's network storage systems have led the market since 1996; their Ultra Workstations accounted for more than half the units shipped worldwide in 1998 and its Solaris operating system is rapidly being adopted as is evidenced by the 49 percent growth rate over the last year. Sun's products and technologies support over 1.2 million network systems, making SUNW one of the largest providers of networking computer systems worldwide.
To advance its already dominant position, Sun spends an average of 10 percent of its operating revenues on research and development - mainly on further development of key products including servers, workstations, storage products, Java , Jiro and Jini technologies, Solaris software and SPARC microprocessors.
The company's efforts are paying off as is corroborated by its financial statements. SUNW realized a record $11.7 billion in revenue for FY 99, up 19.8 percent from FY 98. Net income surged 35.2 percent to $1.03 billion from $762,000 and EPS increased to $1.27, up 31 percent over figures for fiscal year 1998. The company is expected to grow 20 percent annually over the next five years with projected EPS for FY 2000 and FY 2001 at $0.89 and $1.11, respectively.
According to a study done by the University of Texas, from 1995 to 1998 the compounded annual growth rate of the Internet economy grew by 174.5 percent versus the world economy growth rate of 3.8 percent. As increasing numbers of businesses go online, the demand for Internet infrastructure to accommodate that business will grow. International Data Corp forecasts the market for network computers to increase by 72 percent over the next five years and total revenues to increase 41 percent. Look for Sun Microsystems to continue to benefit from the proliferation of computer networking both in the the U.S. and abroad. Although Europe has yet to match the U.S. growth rate of businesses going online, the number of European retail sites is expected to exceed 22,000 by the year 2003, from 4,060 in 1998. The company also cites that the number of Europeans going online will increase from 14 million in 1998 to 48 million in 2003. With its revenue growth geographically diversified (49 percent of its revenues originate outside of the U.S.), Sun is poised to continue meeting the growing need for computer networking products.
JDS Uniphase {JDSU}
Talk about a marriage made in heaven. JDS Fitel and Uniphase merged in early 1999 and thereby successfully brought together two ultimately complimenting companies that expanded each others' reach and furthered each others' efficiency. JDS Fitel was the world's leading electronic switch manufacturer while Uniphase was the world's key producer of Wave Division Multiplexing modulators and erbium doped fiber amplifiers. When the two merged, Uniphase was quoted as saying the two companies "have essentially zero overlap of products and 100 percent overlap of customers". Basically the two empires became one stronger and more efficient empire of fiber optics.
WallStreetCity is not the only investment content source fueling the fervor for this optics play. George Gilder of the Gilder Technology Report dubs JDS Uniphase the Intel of the Telecosm - a sign of the firm's long-reaching goals to rule the fiber market altogether. JDS Uniphase figures to play a gargantuan role in the future of fiber optics, causing the company to be deemed one of the leading technology stocks in the world. JDSU's pending merger with Optical Coatings Laboratory firmly establishes the company as one of the 10,000 pound gorillas of the year 2000 and beyond. This fact is reflected in JDSU's addition to the top 10 stocks of the year 2000 from WallStreetCity analysts.
EMC {EMC}
EMC dominates the market for mainframe computer disk memory hardware and software. Currently, EMC derives the lion share of its revenues from hardware, but it foresees that software will account for 20 percent of total revenue for 2001. The company took a major step in this direction by acquiring Softworks, a company that provides software that eases the management of information stored on centralized storage systems.
The majority of the top Internet brands use EMC's enterprise storage systems - making EMC a primary beneficiary of the data storage boom brought on by the Internet. In addition, the company is extending its reach into the current hot beds of storage; Storage Area Networks (SANs) and Network Attached Storage (NAS).
Wal-Mart {WMT}
Ask most people who the dominant player in the business-to-consumer electronic commerce arena is and the answer will likely be Amazon.com {AMZN}. Ask the same question a year from now and the analysts at Wall Street City firmly believe that the answer will be Wal-Mart.com. To start off the new millennium, Wal-Mart Stores, Inc. {WMT} launched a redesigned Wal-Mart.com that offers what the company describes as "hundreds of thousands of products and services". Throw in one of the best distribution systems in the world, extremely profitable brick-and-mortar stores, a little name recognition and what results is the next category killer in the electronic business-to-consumer space.
How successful will WMT be in the Internet sector? It's tough to say for sure, but consider the numbers. For the first three quarters of FY 1999, WMT had revenues of $114.94 BILLION and NET income of $3.7 million. AMZN had revenues of $963.8 million and has never realized a profit. By the way, did we mention that Wal-Mart.com sells best selling hardback books at 50 percent off retail?
Simply put, nobody in the Internet sector has the financial means to compete head-on with Wal-Mart. Even if other online retailers offer lower prices, their futures are limited if they cannot realize profits. Of course, even if WMT doesn't become an Internet category killer, its underlying brick-and-mortar business is very solid and likely to continue growing in the future, making the stock one of the best Internet bets around.
Nokia Corporation {NOK}
Soon to be the strongest wireless communications company in the world and likely the predominant leader in any and all future wireless technology, this Finnish telecom concern is as strong fundamentally as it is technologically. Nokia boasts one of the strongest profit margins in the industry (slightly over 13 percent) while carrying very little long-term debt. The company's unleveraged position gives executives a panoply of options for future growth - a needed capacity in the continually evolving wireless arena.
Nokia has grown sales 29 percent per year on average for the past three years - more than 5 percent per year higher than the industry average. Additionally, the company has grown earnings at a 36 percent per year pace for that three year stretch -outpacing the industry average by more that 14 percent. This robust level of growth is expected to continue for Nokia. Analysts have estimated earnings expansion of 25 percent a year for the next five years. Another very positive sign for the company is that analysts have recently increased those estimates due to their bullish outlook on the future of Nokia. Estimates for fiscal 2000 have been upgraded more than $0.10 - a rise of nearly four percent. Of the 26 analysts currently covering the stock, eighteen rate the stock a Strong Buy with another eight rating it a Moderate Buy.
In 1999, Nokia rose from $60 a share to over $165 - a gain of 180 percent. Most believe this growth will substantially increase in the future. Nokia is a top ten stock in the year 2000.
General Electric {GE}
In a portfolio dominated by technology stocks, General Electric Company {GE} may seem to be, well....completely out of place. Although the company is old (started in 1892 by a merger of two companies), remains the only original member to still be listed on the Dow Jones Industrial Index, has an incredibly large float (3.2 billion pre-split), and is something that a lot of people view safe enough to put their grandmother in, GE still has a great amount of pizzazz that should make it attractive to the most ardent of tech investors.
For starters, most people do not view GE as an Internet play. Although it is certainly not a pure play, through its ownership of NBC, GE is well positioned to take advantage of the growth in the online world. NBCi gives it top-rate properties including Xoom.com, Snap.com and CNBC.com. Traditional NBC, MSNBC, and CNBC all receive an increasing amount of advertising revenues from web-based companies (Superbowl spots on rival ABC went for record amounts largely because of the competition for airspace among Internet companies). In addition, GE holds ownership interests, through its subsidiaries, in several other companies with Internet operations including CNET Inc. {CNET}, ValueVision International, Inc. {VVTV}, Telescan {TSCN}, iVillage {IVIL}, and 24/7 Media {TFSM}.
Secondly, GE's non-media business units continue to grow and remain profitable. Granted it is not high double or triple-digit growth, but the ability to consistently generate profits is a characteristic that many hi-tech and Internet companies lack. Furthermore, the company is very financially sound and has fantastic management. GE has already proven that it can survive a depression, whereas very few companies that have gone public over the past few years have been around long-enough to even experience a recession.
Finally, the company's management is bullish on the future. When market commentators were noting that GE would never announce a 3-1 split because it might result in the stock price falling below $50, the company's board of directors not only approved a 3-1 split, but also raised the dividend. Such are not the actions of a board that has concerns about future growth. Sell side analysts seem to also be keen on the GE's future, as NINETEEN rate the stock as a buy or a strong buy.
One caveat needs to be mentioned, however. General Electric's CEO, Jack Welch will be retiring in April 2001 and a new CEO will likely be named next year. Who that person will be is the cause of a great deal of speculation and investors should note that the selection of a relative unknown could result in some volatility in the stock's price. Given the great job that Mr. Welch has done, Wall Street City believes it unlikely that his successor will be anything less than completely capable and thus any such volatility is likely to be short-term
Texas Instruments {TXN}
Texas Instruments leads the all important Digital Signal Processor (DSP) market with a 45 percent market share. DSPs can be found in such growth industries as cell phones and cable modems. In fact, half of all the world's cell phones incorporate Texas Instrument's DSPs. To improve its growth prospects substantially, Texas Instruments sold its defense and memory chip units to better focus on the DSP market.
In addition, Texas Instruments has demonstrated that it can exceed Wall Street's expectations by beating earnings estimates in its last 5 quarters. In fact, the company clobbered its last quarter's earnings estimate by 25.58 percent. Further earnings surprises could be on their way due to its recently announced partnership with Cisco Systems {CSCO} regarding cable modems. The cable modem relationship with Cisco makes cable modems widely available in Europe because the two companies have made a chip that allows large cable servers to send and receive data via either the cable outlet in the wall or by a cable set top box. The bottom line is that the Cisco-Texas Instruments relationship could give cable access a considerable advantage over competing broadband technologies like DSL.
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