Here's the article Bosco:
STREET ONLINE
BY GENE MARCIAL
April 25, 2000
Plucking Two Castoffs from the Tech-Stock Dumpster
One giant (Microsoft) and one little guy (Cable Design)
top the lists of a couple of pros
In this kind of a market, where technology stocks
in particular are getting severely hammered, not
many investment pros want to risk being the hero
who goes against the herd. But hero or not, Jerry
C. Apodaca, who heads Apodaca Investment
Group, and Elliott Schlang, managing director at
the research outfit LJR Great Lakes Review,
think it would be very unwise for investors not to
jump at the chance of buying selectively at this
point in the tech market's steep decline.
Apodaca's forte is buying shares of tech
companies -- mainly when they're still young,
undiscovered, and undervalued. His record
speaks for itself: Apodaca Investment Group
chalked up a stunning gain of 356.5% in 1999,
vs. an 86% advance in the Nasdaq composite
index. So far this year through Mar. 31, Apodaca
Investment has racked up an increase of nearly
60%, vs. the Nasdaq's 13% advance. Results in
April, when the market experienced
unprecedented price swings in both the Dow
industrials and the Nasdaq, may cut into that big
gain.
He focuses on small-cap tech issues, although a
lot of them have quickly grown to become
big-cap stocks. One stock that isn't in Apodaca's
portfolio because of its huge market
capitalization is Microsoft (MSFT). But he now
thinks the beleaguered software giant -- currently
trading around 68, down from its high of 119 on
Dec. 27, 1999 -- is a tantalizing buy for the long
term.
WARNING NOTICE. Microsoft has been on the
skids in recent trading days for two reasons:
First, while it beat analysts' third quarter earnings
estimates, it disappointed the Street with its
less-than-expected revenue growth, and warned
that revenue growth would continue to lag this
year. Second, federal antitrust officials are
indicating that they'll seek to break up Microsoft,
perhaps by forcing a spin-off of its Office
software business, the most lucrative part of the company's applications
unit. Microsoft's two other important units are its Windows operating
system software and its Internet business.
Apodaca doubts that a breakup will happen. Over the course of time that
it will take to exhaust its appeal through the courts, "the idea of Microsoft
being too dominant in the software business will dissipate, as more and
more competition takes a bite into its business," says Apodaca.
Already, Microsoft is saying it won't be growing as much as analysts
expect it to, he notes. In a year or so, he says, who knows what kind of
competition Microsft will be facing?
Whatever Microsoft's fate, its stock at the current low price is a great
bargain, and investors should look at it as a must-buy, long-term holding,
advises Apodaca. He thinks that on fundamentals alone -- regardless of
what happens to its appeal in the federal courts -- Microsoft should
recover lost ground and climb back up to the low 100s. He expects the
Colossus of Redmond to continue coming up with new products, new
strategic alliances, new acquisitions, and new businesses to build its
growth. And should it win the antitrust battle, Apodaca expects Microsft's
stock would soar to new highs.
GOING QUITE WELL. While the market has good cause to fret over
Microsoft's prospects, Schlang's selection is a tech stock that has been
beaten down "for no operating reason." He's talking about Cable Design
Technologies (CDT), which traded as high as 42 7/8 on Mar. 9, 2000,
and has dropped to 28. Yet, says Schlang, everything is going quite well
for Cable Design, whose earnings and revenue growth are driven by its
broadband technology and fiber-optics products. The company designs
and makes high-bandwidth network-connectivity products, fiber-optic
cable and connectors, and communications cable products.
Schlang explains that the transition from copper-based networking to
optical networking is just developing. Forecasts for this industry's growth
are impressive, he says, with expectations of as much as 40% a year
increases. This bodes well for Cable Design's fiber-optic products, he
adds.
The market for high-speed access appears insatiable, says Schlang, as
the development of faster hardware, including PCs, and the explosion in
Internet and e-commerce applications spur the need for cables to
provide the bandwidth that will accommodate greater speeds. Cable
Design's sales of high-speed gigabit network products, sold to
original-equipment manufacturers, regional Bell operating companies,
and Internet service providers, jumped 60% in the company's most
recent quarter. Sales of wireless and central-office telecom and
computer interconnect products increased more than 40%. Revenues in
2000 are expected to rise to $753 million from last year's $684 million.
"TERRIBLY CHEAP." Schlang says the stock sells at just 14 times his
estimated 2000 earnings of $1.75 a share and 13.5 times estimated
2001 earnings of $2. "For a tech company whose earnings have
compounded by 27% and revenues by 38% in each of the past five
years, Cable Design is terribly cheap," argues Schlang. He sees the
stock hitting 50 in a year.
Cable Design is likely to catch investors' attention when it reports
earnings for its April quarter on May 24. Schlang expects the company
to beat consensus analysts' estimates of a record 41 cents a share for
the quarter ending Apr. 30. If Schlang and Apodaca are borne out,
investors who paid heed will be happy to call them heroes.
Senior Writer Marcial has been writing Business Week's Inside Wall Street column
for 18 years. Catch his online column every Tuesday afternoon
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