Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Pastimes : The Justa & Lars Honors Bob Brinker Investment Club -- Ignore unavailable to you. Want to Upgrade?

To: Allan Harris who wrote (7091)	7/23/1999 6:10:00 PM
From: Justa Werkenstiff	Read Replies (1) \| Respond to of 15132

Allan: Thanks for the post on the SOX. I have been considering this seasonal pattern -- and other factors -- for the past few months in deciding when to take some profits in this sector. The Green Man has put a new wrinkle into my thinking.

To: Allan Harris who wrote (7091)	7/23/1999 8:34:00 PM
From: Justa Werkenstiff	Read Replies (1) \| Respond to of 15132

Allan: Here is article that tells you something you probably already know anyway: Safeguard Scientifics Inc. A Stock to Love by Warren Gump (TMF Gump) Trading at $40 1/2 as of February 8, 1999 There aren't too many ways that individual investors can play the venture capital (VC) game, supporting upstart companies prior to their initial public offerings (IPOs). Most VC firms are privately held organizations that seek investors who can chip in a million or more bucks, way beyond the budget of most American investors. Safeguard Scientifics, on the other hand, is basically a publicly traded venture capital firm. This company invests its money in emerging companies that need capital, which then become "partnership companies." Most of Safeguard's investments are in high-technology companies. Beyond simply funding these upstarts, Safeguard adds value by leveraging its wide network of contacts to find appropriate management talent and to provide support functions. When partnership companies have developed their businesses to a point where they can benefit from public ownership, Safeguard brings them public through rights offerings. Unlike an IPO, where shares are mostly allocated to big institutions, a rights offering allows Safeguard shareholders an opportunity to buy part of the newly public company. Typically, shareholders will get a right to buy one share of the new company at $5 for every five or ten Safeguard shares owned. While not all of the Safeguard partnership companies have excellent track records, the overall track record is compelling. The more successful partnership companies of the 1990s are Cambridge Technology Partners (Nasdaq: CATP), Coherent Communications (acquired last year by Tellabs (Nasdaq: TLAB)), Sanchez Computer Associates (Nasdaq: SCAI), and Diamond Technology Partners (Nasdaq: DTPI). Between their offering dates and December 31, these four stocks have yielded returns of 1,225%, 1,875%, 432%, and 248%. A full list of offerings this decade (including the dogs) and their performance is available here. Safeguard's investments have tended to be on the cutting edge of technology. In the 1980s it helped fund Novell (Nasdaq: NOVL), which enjoyed tremendous success in the networking area. The 1990s, up to this point, have seen a profitable emphasis on consulting firms and telecommunications. Recently, the company stated that its investment focus in 1999 will be on investments in e-commerce, enterprise applications, and network infrastructure. A bunch of companies in Safeguard's private portfolio sound interesting. Who? Vision Systems, likely to be the next spinout, develops fingerprint identification systems. U.S. Interactive is an Internet services company that develops electronic enterprise solutions. Intellisource handles the outsourcing needs of corporations so they can focus on their core competencies. Pac-West Telecom is a West Coast competitive local exchange carrier (CLEC). The Internet Capital Group is a subsidiary that acts as a venture capital group for business-to-business e-commerce companies. A listing of all the private partnership companies and a description of their activities is available here. While I don't know and understand some of the companies in Safeguard's portfolio, I feel comfortable letting this management team make capital allocation decisions for me. Based on their track record, which has provided 35% compound annual average returns so far in the 1990s, I expect that they will put my money into some extremely profitable emerging technology companies. Putting a valuation on Safeguard is tricky. Given the nature of its businesses, earnings are virtually meaningless. Most of Safeguard's income statement reflects the company's majority ownership of CompuCom Systems (Nasdaq: CMPC), a computer distributor suffering under the pressure of the direct-selling model pioneered by Dell Computer (Nasdaq: DELL). There are also gains and losses related to securities transactions which, in general, are totally discretionary. Another way to look at the company is as a closed-end mutual fund, in that it continues to hold a significant stake in the public partnership companies. By deducting the underlying Net Asset Value (NAV) of the publicly traded securities, you can determine how much you are paying for the private companies. This link provides a recent NAV for Safeguard-owned companies. Over the past year, Safeguard has been trading anywhere from a tad below to about $15 above its NAV (where it is now). I believe this is a better way to look at the company than earnings, but I can't suggest a precise valuation for the private companies. Instead, I have confidence in this management team's ability to make sound investments that increase the value of the portfolio. Such confidence has been earned because of the company's stellar track record. One caveat before signing off of this stock review. Since Safeguard is involved with emerging technologies, the stock is extremely volatile. While its earth-shattering swings can make your heart flutter, ten years down the road they'll hopefully look like the blips from 1990 to 1995 on the current ten-year chart -- virtually meaningless. This company is safeguarding my retirement plans and I love that! Safeguard Scientifics Company Information: Trades on the NYSE under symbol SFE Web Site (www.safeguard.com) Company Address: 800 The Safeguard Building 435 Devon Park Drive Wayne, PA 19087 Other Related Links: Current Quote Chart Message Board