As long as MMs continue to buy the internet puppies with other people's money, people will continue to loose money shorting these puppies. The high short interest is probably the key reason why they keep on going up. Nothing better than short covering to drive the price of a stock up. Wouldn't be surprised to see Asensio covering his NSOL. Did you see this in Barron's? A slightly optimistic assessment on NSOL:-(
On Monday, he was hoping for a repeat performance. Instead of slinking away from the cyber stocks, he was embracing them. He added to his positions in Network Solutions, Knight/Trimark, Amazon.com, Infoseek and Inktomi. "I tell my shareholders, 'Look, the reason you're paying me is to take advantage of situations like this when they arise.' " Sure, but what happens if investors keep rotating out of high-flying tech stocks and into cyclicals -- as many appear to have done in the past week and a half?
Callinan sees this as a temporary phenomenon at best. He argues that investors can't help but return to plays such as Network Solutions, which registers Internet addresses for a fee on the World Wide Web. Like most 'Net investors, he's not as interested in profitability as he is in a company's ability to grab share in a fast-growing market. And for Network Solutions, that growth could be considerable.
Callinan figures the market for annual Website registrations can grow from about three million currently to 300 million over the next five years. He then assumes that Network Solutions can hang on to a 40% market share during this stretch, which brings it to 120 million registrations. (Right now, the company has a 75% share.) He believes Network Solutions will still be able to charge at least $15 for its service, down from its current rate of $35, as other companies enter the fray (as America Online and four other companies last week won government clearance to do). That would translate into $1.8 billion in annual revenues in five years. Callinan figures the company is worth six times revenues, which would make its total market cap $10.8 billion in 2004. Discounted back to the present, that capitalization turns into $5.4 billion. Divide that by the 34 million shares outstanding, and voila, you get a target price of $158 per share. That's almost double where it's trading today.
Top 10 Holdings
Of course, there are a few worrisome obstacles. The most serious is that beginning this week, the company no longer enjoys a monopoly in registering new Internet addresses. The federal government has implemented a plan whereby five new competitors, including AOL and register.com, will be allowed to compete with Network Solutions. Nevertheless, he says he's already taken this eventuality into account.
While such emphasis on revenue growth and apparent disregard for earnings is heresy for most traditional growth investors, Callinan has made it work for his fund. One of his best calls came a couple of months after he took the helm of Emerging Growth in June 1996. |
