First an anonymous guy in Barrons recommending Novell.
Now a Francis P. Collins of The Educated Risk - Taker recommends Novell. Who is going to be next, Michael Price? (just kiddin')
exchange2000.com
Nov 21, 1997
Novell
Francis P. Collins of The Educated Risk - Taker provides the following stock idea. An annual subscription is $199. You may contact them by mail at P.O. Box 285, Upper Darby, PA 19082 or by phone at (800) 510 0944. Novell (NOVL 9 11/32) is a recent selection from their newsletter. Below is the write up.
"Novell designs and sells a wide range of software products used for the linking or networking of computers. Novell was brought public in 1985 through the efforts of one of our core holdings; Safeguard Scientifics Inc. The stock was offered at a split adjusted $0.31 a share. The CEO of the company at the time, Ramond Noorda, guided the company from a young start-up into the industry leader in providing networking software. Sales and earnings exploded, Novell became an outrageously successful company and the stock price topped out at around $35 a share in 1993. Revenues peaked in 1995 at around 2 billion per year. It has been nothing but downhill ever since for Novell. With revenues currently around 1 Billion per year and the stock price around $9 per share.
Why the decline?
Deteriorating earnings, sales and some savage dumping of the stock by the momentum players have caused the stock to go down. On the business side, Novell has been plagued by the following:
1) Leadership problems eversince Mr. Noorda stepped down.
2) No Significant new product cycles.
3) The emergence of Windows NT - a competitive product from Microsoft
I feel that now is the perfect time to purchase shares of Novell due to my belief that the company has correctly addressed each of the problems mentioned above. Novell at current levels is priced to reflect the market's perception that the company is a crashed and burned former high flyer with an aging product line and is getting killed in the field by the mother of all software companies Microsoft.
Lets take a look at Novell in its current form and highlight the positive steps the company has made in order to turn itself around:
1) Management - Novell has responded to the sales and earnings decline by appointing a new chairman and CEO. DR. Eric Schmidt. Schmidt has come over from Sun Microsystems about 7 months ago, where he was Suns' Chief technology officer. The guy has tremendous energy and technical know how, we feel that he is the perfect choice to get the company back on track.
Critics point to the fact that Schmidt is much more of the technical guy than a management type. But that is exactly what the company needs right now. Novell is in dire need of exciting and high-quality performing new products to get the company moving forward. Tech is all about new products that are better, faster and cheaper. I'll take a technically skilled CEO at this point in Novell's history, over a glad handing CEO management type any day of the week. He's exactly what the company needs.
Novell is now entering into the most critical new product phase in the companies history
Schmidt has also set the stage properly for a complete turnaround through his actions in last quarters earnings report. He effectively vomited out all the bad news, took some charges, and basically got it all out out in the open. This strategy of going through the pain now, in order to hear later will serve our shareholders well!
2) New Products - Novell is now entering into the most critical new product phase in the companies history. Novells' main product is its Netware Operating System. The product has huge market exposure through Novells gigantic installed customer base. This is, in my opinion, the #1 asset of the company.
Netware is being upgraded to a more powerful and versatile version called MOAB, scheduled for a late spring 1998 release. This product will shape the future of the company and we feel that there will be tremendous demand and acceptance from Novells' customers for the product. The need for the new product is strong. Novell will give their customers everything that they have been waiting for and then some. This is the biggest factor that we feel will drive the stock.
3) Windows NT/Competition - All I hear from the negative camp is that Novell cannot compete with Windows NT. I don't believe this at all, and in my opinion, it may not necessarily have to. There is no doubt that Microsoft's Windows NT is a very formidable product that is growing at an astronomical pace. What we must keep in mind, however, is the strength of Novell's customer vase. In my mind, any of Novell's customers who were going to give up on the company would have already done so for the most part.
I feel that the market is large enough to handle both players successfully. As a frame of reference, Novell right now is positioned very much like Sequent Computer was about a year ago:
a) Large installed customer base
b) Revolutionary new product release
c) Competition from a major Tech Bellweather
In Sequent's case, the competition was coming from Schmidt's former employer Sun Microsystems.
Non-Believer's in Sequents potential felt that Suns high end server-line and much larger resources would reduce Sequent's Numa-Q to a non-factor. Well, that may be all well and good but Suns' products and presence did not keep Sequent's stock from running, from a low of around 11 per share in 6 months before Numa Q's release to a high of $31 1/2 roughly 6 months after the product was released. I feel that Novell could be in for something similar.
Final Conclusion
I feel that shares of Novell have a good shot to at least double over the next 12 months. Here is How I see the stock playing out. At current levels - hovering between $8 - $8 7/8 per share. I see a maximum of $1 - $2 downside if the stock does back off to anywhere in the $6 or $7 range. Buy as much of it as you can. On the upside, I would not pay more than $10 for the stock - regardless of how good it looks at anytime after that.
I believe that we can get as much as 1/2 of our expected double between now and the actual release of MOAB. I feel that the market will bid the stock up in anticipation of the new release and strong customer acceptance. Barring any major market related or internet debacles, I can see the stock parking itself in the $12 - $13 for the market to get confirmation that Novell is back and growing again. Once the proof shows up in the numbers, that should help get the stock into the mid to high teens, and we will have our double!
The stock has also been the subject of takeover rumors
The only potential negative that I can see at this point are a delay in releasing MOAB, something Novell has been notorious for in the past, or the latest and greatest ridiculous currency crisis, which the market would use as an excuse to pummel all stocks.
What we are betting on here is a timely and successful new product of MOAB and strong customer acceptance. The stock has also been the subject of takeover rumors due to the strong cash position ($1 billion) and name brand recognition. Don't believe the hype. Schmidt did not come over from Sun to sell the company. He wants the "new" Novell to be his legacy, and I am willing to bet on his success." |
