2/25/98 Article in "Undervalued Stock Ideas." See the bolded section on ASND. "We believe these companies trade at reasonable valuations relative to their respective growth rates."
exchange2000.com
In this Edition
* Why the Big 3 (INTC), (MSFT) and (CSCO)?
* Checkpoint Systems
* Green Tree Financial
* U.S. Office Products
* Highlights on SI:
Compaq stacks the DEC
02/25/98 Why the Big 3 (INTC), (MSFT) and (CSCO)?
Randall Williams-Gurian editor of Undervalued
Stock Ideas,
cyberspace.com
provides the following commentary. A 1 year
subscription is $89. You may receive a FREE trial copy
of his publication and details can be found at the above
web site. Below is his write up.
Why the Big 3 (INTC), (MSFT) and (CSCO)?
"There are a number of characteristics common to the
Big 3 which account for their continued success in the
market place. We believe these critical success factors
can continue to propel the Big 3 stock prices higher and
that these attributes can be used to help identify other
winners in the technology arena. Microsoft, Intel and
Cisco all have performed remarkably well over the last
5-10 years. In 1998, these stocks have continued their
upward ascent: up 20% 31% and 18% respectively.
What makes these companies so special and should
technology investors continue to put new money into the
Big 3?
We believe the following 4 characteristics account for a
majority of the success of the Big 3. The Big 3 dominate
their respective markets, have excellent management, use
effective marketing strategies, and invest substantial
amounts of money in R&D.
*Dominate market position -Microsoft, Intel and Cisco
all dominate their respective markets. Microsoft market
share in the desk top operating software market is
greater than 90%, Intel owns over 80% of the market for
microprocessors which run personal computers, and
Cisco Systems is the leading provider of routers used in
creating corporate networks. Cisco has leveraged its
position in the router market and expanded its product
offerings through key acquisitions resulting in trouble for
its 2 largest competitors Bay Networks and 3COM.
Cisco is now the dominate network equipment company.
Why own Bay or 3COM when you know Cisco is
almost a slam dunk to deliver on its earnings?
*Excellent Management - What do Bill Gates, Andy
Grove and John Chambers all have in common? They all
know how to create shareholder value. Over the last 5
years Microsoft stock is up 40% on an annualized basis,
Intel stock is up 41% and Cisco has turned in a 31%
average annualized return. We believe a majority of these
returns are attributed to the leadership by the Big 3's
CEOs. Investors in the Big 3 should feel confident
knowing that each of these CEOs have made great
business decisions for their shareholders in the past and
should continue to do so in the future. Microsoft was
able to turn on a dime and literally almost put Netscape
out of the web browser market and now has a significant
presence on the internet. Andy Grove and Intel's top
management handled their microprocessor math error
flaw almost without missing a step. Cisco has been able
to with stand the challenge from a number of its
competitors by purchasing and quickly integrating over
21 companies over the last 3 years which control up and
coming new network equipment technologies.
*Shrewd marketing -The Big 3 all have incredible
marketing savvy. Each works with its customers to insure
they are on track to meet future product needs and each
has a knack for establishing critical business alliances.
Microsoft is feverishly working on its next generation
operating system for both the desk top (Windows 98)
and the enterprise market (Windows NT), Intel is
working with Hewlett Packard on its next generation
microprocessor code named Merced, and Cisco
continues it aggressive acquisition plan with its 2 most
recent purchases including WheelGroup and LightSpeed
International.
*Heavy investments in R&D - Microsoft spent over $1.2
billion dollars on research and development in its first half
of fiscal 1998, and is on track to spend over $2.0 billion
by the end of fiscal 1998 (June). Microsoft's R&D
activities have allowed the company to become a
dominate player on the internet and its Windows NT
software is now in a position to take on UNIX for the
lead in enterprise computing operating software market.
Intel spent $2.3 billion dollars in fiscal 1997 on research
and development which is almost 5 times more than its
closest competitor, Advanced Micro Devices. Intel's
R&D efforts allow the company to continue to reduce
the prices of its microprocessors making it extremely
difficult for its competition. Intel's 2 largest competitors,
AMD and Cyrix (which is now part of National
Semiconductor) really have only been able to compete in
the low end processor market targeting PCs for under
$1,000. This threat to Intel is over blown, and Intel
continues to rollout more advanced versions of its
Pentium processor for the high-end corporate computing
market. These higher-end processors carry more
favorable margins. Cisco's investment in R&D is the
result of their aggressive acquisition strategy. Cisco finds
companies with new innovate network technologies and
essentially pays for their R&D efforts through the
acquisition price. In most cases they retain the R&D
engineers from the acquired company.
Below is a list of well known technology companies
which have some if not all of the characteristics of the Big
3. We believe these companies trade at reasonable
valuations relative to their respective growth rates.
ú Texas Instruments (TXN) owns over 40% of the digital
signal processor market and continues to reduce their
reliance on the DRAM market. TXN is also spending a
tremendous amount of money on their DSP research and
development effort. The DSP market is expected to
expand ten fold to over $50 billion over the next decade.
ú Applied Materials (AMAT) maintains the dominate
position in the market for semiconductor capital
equipment with an estimate 25% market share. Applied
is run by one of the most respected CEOs in the
technology industry, James Morgan. CEO Morgan has
been at the helm since 1977 or for more than 20 years,
and during his tenor the company's stock has done
extremely well.
ú Dell Computer (DELL) meets the above criteria due to
the company's advantage in the direct order PC market.
Over 90% of Dell's sales are made directly to business
and government agencies and it sports' the highest
average sales price in the PC industry. Dell has the
highest inventory turnover in the industry and its build to
order production method generates a ton of cash. Plus
why bet against Michael Dell his stock is up over 1500%
in the last 5 years.
ú Ascend Communications (ASND) has the top spot in
providing high speed wide area network products and
high-performance internet Protocal (P) switching
products. Ascend's products are used by Internet
Service Providers (ISPs) and telecommunications carries
to build wide area networks. Ascend's recently
completed acquisition of Cascade Communications
allows Ascend to expand its product offerings in the
ATM market to phone carriers.
ú Western Digital (WDC) supremacy in the disk drive
market served its shareholders well until the recent
collapse in the hard drive market. WDC has a 20%
stake in the market for desk top drives and is moving
quickly into the enterprise storage market with a number
of new product offerings. WDC's CEO Charles A.
Haggerty is top notch and has managed the company
through prior boom and bust cycles.
The bottom line is if you own the Big 3 continue to do so,
and if you are frustrated because you don't, then we
believe there is still time to join the party. If the Big 3
seem expensive and go against your strict valuation
criteria, then we recommend taking a close look at the
runner ups mentioned above. More information on these
stocks and technology investing can be found by visiting
our web site @
cyberspace.com;
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