The 5% Club - Stocks down 95% from their Highs Message Board

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Strategies & Market Trends : The 5% Club - Stocks down 95% from their Highs

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To: Larry S. who wrote (166)	8/16/2002 8:21:05 AM
From: DanZ	Read Replies (1) of 202

Here's two more. Intervoice (INTV) and Nuance Communications (NUAN). Both of these companies are in the speech recognition sector of IT. These types of products have been shown to increase productivity and lower costs by offloading routine calls from humans to computer databases. Intervoice sells turn key systems that interface computer databases to telephone keypads or voice commands. Nuance develops and markets speech to text software that is the heart of the systems that Intervoice and other integrators sell. Three things have hit INTV, which traded as high as 18.35 in December 2001. The decline in spending on speech recognition systems and other IT infrastructure. 2. The company issued a $10 million "floorless" convertible note a couple of months ago, which caused an acceleration in the decline of the shares. 3. The stock was removed from the S&P 600 Small Cap index in July 2002, which primarily contributed to the decline to 0.90. The company has said that they plan to pay back the convertible note with cash rather than stock. They just received a $3.5 million income tax refund from the IRS, and should generate enough cash to make the payments on the note without issuing stock. The loan is very small anyway, and could be refinanced. I believe that they hype surrounding the convertible notes, combined with index fund selling surrounding their removal from the S&P 600 index, have pushed this stock way below fair value. It has already recovered to about 1.75, but I think that it will rally more when they make the debt payments with cash and their sales pick back up. The stock is trading at about 0.25 times sales. NUAN has 4.34 in cash and no debt. The stock closed yesterday at 2.65, which is nearly 40% below cash. The company is losing money, but their negative cash flow is small. They only burned $3 million in the last six months. This stock could increase in value 40% just to get back to 1 times cash, and the company is well positioned to do well when spending on IT infrastructure picks up.

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