Two Reasons to Like 3Com
Checking out the network-equipment maker.
By David Rynecki
In the world of network-equipment makers, 3Com (COMS, $8) has never been much more than a second-tier player with an underperforming stock. Even at the height of the tech bubble—when 3Com spun off its one hit product, Palm—the company lagged behind its peers. Shares rose just 20% from early 1996 to the market peak in 2000, vs. a 1,700% gain for rival Cisco. Since then, business has looked ever bleaker. The company hasn't come anywhere near a profit in three years, and it recently reported quarterly revenues that were down 33% from the year before.
So why do value investors suddenly love this stock? First, there's a degree of protection. The nearly $4 a share in cash that 3Com has should act as a collar against any serious declines. Second, there's the potential for something big. In November, 3Com launched a joint venture with Huawei Technologies, the leading Chinese networking company, with $3.5 billion in annual sales. The deal lets 3Com market Huawei's products globally and sell 3Com equipment in China. Analysts say the deal could could make 3Com the low-cost alternative to Cisco.
That sentiment is gaining traction. Bob Olstein of the respected Olstein Financial Alert fund, for example, recently purchased 1.5 million 3Com shares. "I'm still not a big fan of 3Com," admits Olstein's co-manager and in-house tech expert, Sean Reidy. "But with IT budgets expected to remain low, 3Com could gain some serious appeal."
From the Jan. 12, 2004 Fortune Issue |
