The Wall Street Journal -- June 29, 1999
All-Star Analysts 1999 Survey:
Telecommunications & Network Equip.
----
By Stephanie N. Mehta
Staff Reporter of The Wall Street Journal
The All-Star analysts who follow telecommunications and network equipment racked up high returns last year by espousing the idea that the telephone networks of the future will be built using high-tech, computer-networking gear.
They may have talked themselves out of jobs.
Two of the top three stock pickers have moved into new areas of coverage this year, partly because so many makers of network equipment have been acquired by traditional telephone-gear companies, such as Lucent Technologies, which often are covered by different analysts.
Scott Heritage of Warburg Dillon Read posted an estimated 127% return -- earning a spot on this year's Home-Run Hitters Team -- largely on his recommendation of Cisco Systems. ''Cisco is the pre-eminent data-networking company in the world, fueled obviously by the growth in data traffic,'' Mr. Heritage, 32 years old, says. He believes Cisco is well-positioned to serve the telecommunications industry, which requires more-robust, more-high-capacity systems than Cisco's traditional corporate customers.
Still, Cisco and 3Com are among the last of the large, stand-alone networking companies. Ascend Communications has been acquired, Bay Networks has been acquired, and many of the smaller niche players eventually will be swallowed, too, Mr. Heritage predicts. Early this year, Mr. Heritage began covering so-called contract manufacturing companies, such as SCI Systems, which make electronic products for computers and satellites. ''The days of the stand-alone, data-networking analyst are going by the wayside,'' he says.
Mr. Heritage won't be severed from the networking industry, though: He believes the telecom-gear companies increasingly will outsource their electronic parts to the companies he now covers.
The No. 2 stock picker, Christopher T. Stix of SG Cowen Securities, racked up an estimated 105% return. His big pick last year: Computer Network Technology, a little-known company that has evolved from a traditional computer-networking company into a specialist in data storage. He continues to recommend the stock, along with Cisco, Lucent Technologies and Nortel Networks.
Mr. Stix, 44, says the most satisfying part of the job is predicting when a struggling company is about to improve. He prides himself on being one of the first analysts to upgrade Computer Network Technology, in May 1998. He also upgraded Ascend earlier last year and watched its stock soar to $65.75 at the end of the year, from $34.81 in late March. ''That's the fun part of the job,'' he says.
In third place, Timothy Witt of Olde Discount posted an estimated 97% return on the strong performance of Xircom, a maker of computer equipment that helps remote personal-computer users connect to corporate networks. Xircom more than tripled, rising to $34 at the end of the year, from about $10 in January.
But the acquisition and pending acquisition of two of Mr. Witt's 1998 picks -- Bay Networks and Ascend -- prompted the 31-year-old analyst to shift coverage areas. He now follows the financial-services industry for Olde Discount.
It's a big shift for Mr. Witt, who has spent his entire career as an analyst at Olde Discount. ''In financial services, you're more focused on macro issues, such as interest rates,'' he says. ''With networking companies, you're focused on the minutiae of technology.''
interactive.wsj.com
Scott Heritage
Scott Heritage of Warburg Dillon Read doesn't stint on praise for Cisco Systems, a maker of equipment that helps move data traffic from one place to another. Cisco is "the pre-eminent data-networking-equipment company in the world," the 32-year-old analyst says. "It's just a fantastic, fantastic company."
Though Cisco gained 150% last year, Mr. Heritage says the company is his top pick for 1999. Cisco should continue to benefit from increasing sales to long-distance companies, cable-television companies and Internet-service providers, he explains.
"Anyone providing voice or data services is a potential customer," Mr. Heritage says. Another plus, he says, is the company's strong technology.
interactive.wsj.com |
