Communications Technology
By DEBORAH SOLOMON
Staff Reporter of THE WALL STREET JOURNAL
The growth of "anytime, anywhere" communications and demand for
high-speed Internet access netted stock pickers in the
communications-technology category some huge returns last year. The top
analysts in the sector scored big by picking companies that either sell gear to
speed traffic across the Web or make equipment for wireless access.
Wireless-equipment companies propelled Mark Roberts of First Union
Securities to this year's No.1 spot among the sector's stock pickers in The
Wall Street Journal's Best on the Street Analysts Survey. Mr. Roberts, 41
years old, was at Everen Securities, which was acquired by First Union
Corp. in October.
Mr. Roberts netted large returns in 1999 by picking companies that focus on
a "niche category" and grab the top market share in that space, he said.
One example is Proxim, which earned Mr. Roberts a return of more than
295% during the period he rated it a "strong buy." Mr. Roberts said he
picked Proxim, which makes products that link computers and networks via
a wireless connection, because it "wasn't widely understood that in their
niche they were No.1 and for the last few years were consistently picking up
market share."
Besides looking for companies that have a defensible niche, Mr. Roberts said
he places strong buys "where there is a lot of noise and controversy about a
company or a technology." His reasoning: "The only time and the only way
you ever outperform the market is to understand controversial issues and
then do enough research to be on the right side of the debate."
As an example, he points to his strong buy recommendation on Qualcomm,
which had a total return last year of about 2,622%. Mr. Roberts said he
began aggressively recommending Qualcomm a few years back when the
debate about CDMA -- Qualcomm's patented wireless technology -- was
heating up and it was unclear whether the technology would gain mass
acceptance.
Mr. Roberts said he did his homework and learned "the growth rate of
CDMA around the world as a technology was much faster than what most
investors perceived." Looking ahead, he likes Qualcomm because CDMA
technology will be used in many next-generation wireless phones.
He also is bullish on Sawtech, a maker of filters for wireless-communications
equipment, for many of the same reasons he favors Qualcomm. A debate is
raging about whether filters -- which weed out interference on wireless
phones and other devices -- will be necessary in the future. Mr. Roberts said
filtering devices are in demand and that "I tend to be very focused on what
the customers are writing checks for."
Back as a winner for the sixth year, Lior Bregman of CIBC World Markets
took second place in the category with recommendations on such
lesser-known firms as Adaptive Broadband, which uses microwave
technology to send large amounts of voice, video and data to wireless
Internet connections. That stock, which he rated a "strong buy," gave Mr.
Bregman a 696% return.
The Israeli-born Mr. Bregman, 42, credits his stock-picking prowess to his
days as a defense-industry analyst. When consolidation forced defense
companies to find customers outside the military, Mr. Bregman realized that
broader use of defense technology could mean a revolution in wireless and
broadband communication.
"All those things in defense that were proprietary in the military found their
way into the commercial market," Mr. Bregman said. "That gave us an
opportunity to be there early and to be aware of wireless communication,
technology infrastructure and broadband."
Once a telecom officer for a paratrooper unit of the Israeli army, Mr.
Bregman also takes his cue from innovation he saw in his native country. He
is bullish on several Israeli communications-technology firms, including Gilat
Satellite Networks and TTI Team Telecom International.
Mr. Bregman expects the market to continue growing for firms that sell
wireless-broadband and telecommunications-infrastructure gear and hopes to
spot more winners early on. Right now, he also is focused on a different sort
of goal -- the type his three young sons score in their soccer games, which
Mr. Bregman faithfully drives them to and from.
Patrick Houghton, who spent 1999 with Tucker Anthony Sutro's Sutro & Co.
unit, placed third on the list by picking companies that are "in good market
spaces" and have technology that is in demand. Mr. Houghton, who left
Sutro in May to pursue other opportunities, picked Ortel, an
optical-networking company that makes lasers and other gear. Rating the
stock either a "strong buy" or a "buy" throughout the year, he watched the
stock soar as the company was swallowed by Lucent Technologies, gaining
nearly 1,280% for the year.
"I talk to carriers and equipment companies and try to figure out what's the
hot equipment," said Mr. Houghton, who is back for the second time as a
winner in the Journal's annual ranking.
One company he picked in 1999 that he is still bullish on is Tellabs, a
communications-infrastructure company that Mr. Houghton said is a bargain.
"There's a perception that they have yesterday's product, but that's not the
case," he said.
Another company that is trading at a discount is Lucent, which Mr.
Houghton said is poised for a tremendous run-up. "It's a compelling
valuation," he said. "Lucent has good products, great customer relationships
and a solid management team."
Mr. Houghton said he is willing to take the risk of buying into a company
when others say it is still too early. He cited his pick of Nortel Networks, a
networking company he recommended a couple of years ago while the
company was being "taken to the woodshed" for missing its quarterly targets.
He hung on because he felt Nortel had solid technology, and eventually saw
the stock soar.
Whether he will repeat that process with another company anytime soon is
unclear. Mr. Houghton said he may take his stock-picking skills to another
firm, move into the world of venture capital or go work for a company in the
telecommunications-equipment sector. "There are a lot of options," he said. |
