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Technology Stocks : Dialogic ready to soar, funds buying
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To: David R who wrote (422)8/25/1997 8:09:00 PM
From: Jay M. Harris   of 674
 
Nice post Dave, I have a question and then a comment on your prior post re the 2 brokers (first Albany;Piper Jaffrey) that downgraded DLGC based on price.

Question#1) Can you think of any way to determine PBX attrition (lost share) to open systems ditributed CTI. This is an enormous market opportunity for DLGC and I think most of the DM3 solutions roll out in 98. Also, how long would you guess before DM3 makes meaningful competitive inroads against the competition( proprietary systems and open vendors NMSS;BRKT).

Regarding the downgrades, I would like to pass a little tidbit of sellside compensation schema along.

#1) Sellside analysts have a large portion of their compensation tied to incentive compensation based on the performance of their stock selection. In many cases up to 100% of base salary annually. Many play the ratings game to optimize their compensation. It goes like this.
Find a broken growth story early in the calendar year with a high beta and many of the business attributes common to DLGC. Then feel out Mngmt regarding the rate of sequential improvement in fundamentals. Then go with the buy rating and a price target which is a fraction of previous highs to be conservative. Once the target is achieved take your rating back down to preserve your relative performance. This is a very easy way to "Lock-in" lucrative compensation, and at the same time serve the very target market (institutional investors) time horizons that cause much of the short term volatility in illiquid issues like DLGC.

Now David, for you this is not a problem, because you are close to this company and can properly filter the capital market BS. However, for me this creates client challenges and a large degree of proactivity on my part for holding on to exploit what I know represents outstanding long term risk/reward.

This is what frustrates individual investors. "Professionals" run around the country and espouse the virtue of long term objective investment. Yet back in their office instant gratification rules the day as transactions within mutual funds are rarely seen by the fund shareholders. This phenomenon is more common now then ever witnessed before in my 10 years as a PM. This is because of all the mutual fund consultants constantly monitoring short term results.

In any event, I'm sticking with my $52. 12 month target and would debate at legnth why risk/reward is extremely favorable at these levels.

Happy Investing,

Jay
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