Robbie...you're up late 2-night....here's an interesting article touting some non-NUTZ stocks that are big beneficiaries of the net....
Let's go catch some breakfast at the Cracker Barrel 2-morrow morning and ponder how much BUTT we will kick as the day unfolds....
jajajaja
Jimbo.
August 5, 1999
As Bear Growls, Some 'Net Stocks Still Look
Solid
By Carolyn Whelan
San Francisco
Finding potential winners in what looks like a bear market for Internet stocks
is a bit like throwing darts while blindfolded: You aim for the bull's eye and
hope you don't hit a passerby instead.
After the selloff of the last couple of weeks, companies that
could do no wrong this past spring are now covered in scar
tissue: America Online, Yahoo and Amazon.com, for
example, have lost at least half their market value as
investors sour on their earnings prospects.
That's why some fund managers prefer less well-known companies that
provide the infrastructure for e-business. They include Verisign, International
Network Services, Macromedia, and Transaction Systems Architects --
which presented at this week's Pacific Crest Securities e-conference here. All
these companies are making money and have robust earnings growth rates
ranging between 25 and 50%.
As we said in our March 4 Weekday
Trader, "With Y2K 'Over,' Software
Spending Hits the Web," online security
is the cornerstone of e-commerce. And
even if online demand for stocks or stuff
wanes for a time, Web sites will have to
be powerful and robust enough to
support future growth.
That may be why International Network
Services stock remains near its high.
The company, with a market capitalization of $2.4 billion, designs and
operates networks in areas that CEO John Drew said will grow exponentially
because of the spread of Internet use in homes.
Indeed, revenues from the network consulting and integration market is
expected to nearly double to $14.1 billion in 2002 from $7.6 billion last year,
according to the International Data Corp. INS is one of the biggest pure plays
in that market.
That's why Walter Price, portfolio manager of the Dresdner RCM Global
Technology Fund, likes INS. "It's a very good business," he says. Its
customers (over half the Fortune 100) include Cisco Systems, British Telecom
and MCI WorldCom.
Another favorite? Verisign, with a market capitalization of $3 billion. The
company issues certificates confirming a sender's identification, and makes
software for secure transmissions.
"It's a needed part of the Internet infrastructure, and one that's going to be
around for a long time," says Anthony Xuerab, an analyst at Alliance
Technology.
The potential goes beyond secure transactions. "With legal contracts being
e-mailed you want to know that the person on the other end is who they claim
they are," says George Gilbert, co-portfolio manager of the Northern
Technology Fund.
Unlike other Internet companies, Verisign's business is reasonably predictable.
"They've got good management and deferred revenue, so you have a good
vision of what's coming down the pike," explains Xuerab.
The pros also like Macromedia, with a market capitalization of $1.2 billion.
The company sells multimedia technologies over the Web.
"It has neat technologies," says Gilbert,
including 'Shockwave' and its Flash
player.
Shockwave enables animation on Web
sites (it is frequently used in banner
ads). It is also used in interactive games
and site development. And Flash is
compatible with all major browsers and
operating systems. The upshot: The
installed base of Flash is 70 million and
Schockwave an impressive 100 million,
which makes the technology nearly as ubiquitous as Adobe Acrobat.
"The 83% installed base of Flash users means that our reach is greater than
cable stations," CFO Betsey Nelson told the conference attendees.
In May, the company launched its new Shockwave.com personal
entertainment portal, which some say may be spun off. The growth of
broadband and Internet appliances could also be a boon to the company.
Money manager George Gilbert also likes Transaction Systems Architects
(TSAI), which has a market capitalization of $884 million. "They're a good
quality company," he says.
TSAI supplies software to banks and retailers for processing debit, credit,
ATM and checking transactions.
"[Their] software and services [will] become increasingly important for
payment forms like ATM and point of sale," says Franco Turrinelli, an analyst
at William Blair & Co., who rates TSAI a Buy.
And Bryan Keane, an analyst at BancBoston Robertson Stephens (who also
rates it a Buy) likes the company because of the growing market for electronic
payments, credit card purchases and smart cards.
Also of note are TSAI's customer base (it sells to 111 of the world's top 500
banks), international customers (57% of sales), and high recurring revenue and
backlog.
At Thursday's closing price of 44 27/32, International Network Services
changes hands at a high 60x estimated fiscal 2000 earnings of 75 cents for the
year ending in June, according to First Call. But its 2001 P/E of 43x earnings
of $1.05 is a discount to its 45% projected long-term growth rate.
"It's undervalued, has a high growth rate, and is a real company, with real
earnings and real cash," says Price.
Transaction Systems Architects, at 27 11/16, is 46% off its high of 50 ½ that
it set in January. And its P/E of 20x earnings estimates of $1.40 for the fiscal
year ending September 1999 and 16x the $1.74 analysts expect it to earn in
fiscal 2000 are healthy discounts to its 27% long-term growth rate.
And as for Macromedia, at its current price of 33 5/8 it's 32% off its high of
49 3/5 that it set in April. And though its P/E of 47x the 71 cents analysts
expect it to earn in the fiscal year ending in March 2000 exceeds its 35%
long-term earnings growth rate, its March 2001 P/E of 31x estimated earnings
of $1.07 is a nice discount to that number.
Of course, there are risks in these stocks as well. For INS it could be
competition from telecommunications behemoths (though most already
outsource to INS). And international economic turmoil and Y2K could impact
TSAI's business. For those reasons, "electronic payments [might not] take off
as quickly as people think," says Keane.
But however you slice it, e-commerce is here to stay. You can operate a new
roadway without another Roy Rogers rest stop. But you can't do without
asphalt, signposts and the highway patrol teams.
On the Internet highway, these companies will build and maintain the roads for
Amazon, eBay -- or whoever takes their place.
|
