Gene Marcial is Business Week's Inside Wall Street columnist
Except for deep-pocketed, well-connected big investors, few people manage to buy into initial
public offerings -- especially the hot ones. One recent IPO scorcher was Stratos Lightwave
(STLW), which jumped to 50 a share on its opening day on June 27, up from its offering price of
21. It has since sagged to 33. But some pros in the know argue that the stock is now a great buy
-- especially for those who were kept out of the stock's IPO.
Stratos makes subsystems and components for fiber-optics networks, including transreceivers,
connectors, and cable asemblies. These components are incorporated into the optical networking
products of such companies as Nortel Networks (NT), Cisco Systems (CSCO), Agilent (A),
Lucent Technologies (LU), and Alcatel.
Stratos is one new issue that is definitely still undervalued and deserves serious post-IPO
attention, argue some money managers who have been buying at the stock's current levels.
Stratos, they believe, is headed into the stratosphere -- where the other stocks in the fiber-optic
components group have gone.
SHHH. One reason for Stratos' flattish behavior since hitting the mid-30s: The company is still in
its four-week "quiet period," when both it and its underwriters aren't authorized to publicly
comment on the stock. That quiet period ends on July 21. So the pros expect the stock to bolt
again after that day, when analysts, the company, and its fans can start talking up Stratos in full
force. Some pros who know the company -- and who were in on the IPO -- have been buying
more shares in the open market.
One such investment manager in San Francisco is convinced that the stock could hit 100 in 12
months, based on Stratos' products and the big moves that the company's peers have made. This
money pro declined to be identified because he's privy to some insider analyses and estimates on
Stratos, being very close to some of the IPO's underwriters, which were spearheaded by Lehman
Brothers and CIBC World Markets.
"The stock is way undervalued when compared to the market cap of Stratos' rivals, including
Avanex (AVNX), New Focus (NUFO), and Sonus Networks (SONS)," says the money
manager.
UNPROFITABLE PEERS. One analyst estimates that Stratos will generate revenues of about
$110 million in 2000 and around $170 million in 2001. And he expects the company to continue
making money. He figures that Stratos will earn 12 cents a share this year and 22 cents in 2001.
At its current price of 34, Stratos has a market cap of $2.1 billion. Compare these numbers those
of its peers and you'll realize how undervalued Stratos is, argue some of its supporters.
Avanex, which is expected to post revenues of $50 million this year, trades at 162 a share, has a
market cap of $10.5 billion, and it has yet to make money. New Focus, also expected to post
revenues of $50 million in 2000, is trading at 132 a share, with a market value of $7.7 billion. It
isn't making money yet, either. And Sonus, also not yet profitable, is expected to post sales of
$30 million this year. Trading at 186 a share, Sonus has a market cap of $11 billion.
When investors hear more about this, shares of Stratos should get a lot more attention, says an
analyst at one of the underwriting firms. No matter how you slice it-- by products, customers, or
market capitalization -- "little-known Stratos is way underpriced when compared to its close
rivals," says the analyst.
For more discussion on this, go to
clearstation.com. |
