OT : Seven reasons why this stock is so cheap
telecomtechstocks.com
¸ 2000 by Dr. Bill Dalglish. Permission is hereby granted to reproduce this article providing it is for free distribution and the Web source (TelecomTechStocks.com) and the author (Dr. Bill Dalglish, CFP) are credited.
Of particular interest to QCOM investors are the claims embodied in a hyperlink....
telecomtechstocks.com
These are :
Interdigital, it turns out, owns some 14 patents for CDMA technology. A hedge fund manager
who declined to be identified says Interdigital's patents will be needed for the development of
third-generation wireless phones, expected to start arriving as early as 2003. And Interdigital
has a partnership with Texas Instruments (TXN:NYSE - news) that could give it a strong
position in competing with Qualcomm.
Will Strauss, an analyst at Forward Concepts who tracks this market, says Texas Instruments
and Interdigital together could offer Qualcomm some stiff competition in CDMA technology.
(Forward Concepts is a consultant for TI.) Already, TI is designing new chips with Interdigital's
patents.
And "Texas Instruments is tied at the hip with Nokia (NOK:NYSE ADR - news)," he says. Nokia
is the world's leading seller of wireless-phone handsets, though in the past it has lagged
competitors in selling CDMA-based phones.
Until now, Interdigital has operated in a niche market for wireless devices, but hasn't been very
active in the phone market. But as CDMA technology gains adherents, an alliance of Nokia, TI
and Interdigital could be quite formidable, says Strauss.
In its annual report filed Nov. 17, Qualcomm reported that it had licensed patents from
Interdigital essential to its own CDMA technology. That day marked the launching point for
Interdigital stock, which had hovered around 6 per share for years. Since Nov. 17, the shares
have jumped more than 700%.
"Qualcomm will try to force its patents on everybody, but don't believe Qualcomm will own the
world," says Strauss at Forward Concepts. "Interdigital was doing CDMA before Qualcomm
even thought about it."
Vent your spleen on the IDC thread....
Message 13401901
The full article....
Seven reasons why this stock is so cheap
1. Investor psychology: Fear of "regret" and the "bandwagon" mentality
2. Lack of public awareness that IDC is being "accumulated" by the big guys
3. Difficulty of average investor in understanding high tech
4. Inadequacy of Public Relations
5. Retail analysts (a.k.a. "penguins") are asleep at the switch
6. Loss of patent infringement case to Motorola in 1995
7. Current management still feeling affects of "hype claims" years ago
Why Is This Stock So Cheap? Although the share price of InterDigital at $18 - $20 is 350% higher than in November,
1999, it still remains one of the most inexpensive investments, based on its risk to reward ratio. (see: IDC's
Risk-Reward ratio)
Here are seven reasons why InterDigital's stock is still so cheap.
1. "Investor Psychology: Fear of "regret" and the "bandwagon" mentality No matter how thorough the
research an investor does nor how compelling the outlook for a particular stock, fear of making a mistake and regretting
it later tends to keep even experienced investors from purchasing shares until the share price exhibits several months of
upward movement. Until there is a sustained upward trend (not the day traders' binge we experienced in late 1999)
investors are going to be wary of relatively unknown firms like InterDigital. (Of course, it is firms like this that are the
potential "ten baggers." That's Peter Lynch's term for ten times 100% growth.) News related to new licensing
agreements and/or a settlement of InterDigital's massive patent infringement case against Ericsson will likely prompt a
strong and sustained rally.
2. Lack of public awareness that IDC is being "accumulated" by the big guys InterDigital has been in an
accumulation pattern since late Summer, 1999. That's when the "big boys" started buying in earnest. Evidence of their
accumulation: 1. the buying of big blocks of IDC shares and 2. the substantial increase in the number of institutions
owning InterDigital shares. msn.com's Jon Markman has a helpful insight: "One of the first things that I do when
investigating companies whose technological edge I really don't understand, or which might seem flakey in one
regard or another, is find out who their institutional backers are. Many times it's very reassuring to see that
some very smart managers who have the most sophisticated buyside research analysts at their disposal, have
done the truly heavy lifting of due-diligence. In the case of IDC, it's clear that their backers are blue chip. Here's
the list from MarketGuide of the top-10 holders. A few of these are considered value managers, which is
interesting (Heartland and Aronson) and it's cool to note there are two major government pension funds, which
are among the most conservative investors in the nation (TIAA CREF and the State of Wisconsin)." Top
institutional holders include: Heartland Advisors, Barclays Bank, Vanguard, Fidelity, Aronson+Partners, Dimensional
Fund Advisors, Taunus, TIAA-CREF, Invista Capital Management, Legg Mason and Wisconsin Investment Board.
InterDigital is one of Heartland Value Fund's biggest holding and is responsible itself for most of the Heartland fund's rise
in value in 1999. Accumulation by the "big boys" is a very bullish sign, of course. Qualcomm is a case in point. Telecom
technology developer Qualcomm traded at $40 three or four months before the brokerage analysts took notice. After
the so-called "smart money" had been accumulating for several months, the first real recommendation from brokerage
analysts surfaced. Qualcomm, remarkably similar to IDC in its current emphasis on technology development and its huge
patent base, was up 1,800% at the end of 1999, having begun last year at a very modest price evaluation. (No
guarantees that IDC will do the same, but since November, 1999, it is on the way, and the parallels are surely
remarkable.
3. Difficulty of the average investor in understanding high tech Its not easy for an investor without technical
training to understand the engineering breakthroughs IDC has accomplished. But the media is beginning the education
process with front page stories in daily newspapers mentioning "new third generation standards", "wideband CDMA"
and other important wireless terms, reflecting technology that IDC has been very quietly pioneering. Aptly dubbed "Baby
Qualcomm" by CNBC and Dow Jones and "Junior Qualcomm" by Paul Kangas on the PBS Nightly Business Report,
InterDigital is finally on the verge of being "discovered" and now we are beginning to see the media giving appropriate
credit specifically to IDC for its leadership in both second and third generation technology development. (See: "Telecom
Technology for Non-Techies" for a beginner's level introduction to telecommunications technology.)
4. Inadequacy of Public Relations Until former president William Doyle resigned in October, InterDigital management
lacked either the interest in or the charisma to "sell" the company to Wall Street, even though management could
obviously sell its technology to the scientists at a giant like Nokia. A search for a "fire in the belly" CEO is underway with
expectations that the post will be filled in second quarter 2000. Although significant improvement in public relations has
been apparent since Interim President Howard Goldberg assumed the management reins in October, IDC is still largely
understaffed in PR and has badly needed to supplement (media contact person) Susan Sutton and (vice president) Rip
Tilden by outsourcing an aggressive media awareness campaign. April 3rd, Rip Tilden indicated that a new PR firms has
now come on board. It is one of the best in the country, acccording to reliable reports. The PR consultants are currently
mapping out strategy. Their efforts likely will become apparent in May, 2000.
5. Analysts are asleep at the switch We likely will see recommendations of InterDigital from major brokerages. But
don't hold your breath. I expect that brokerage analysts, being basically penguins in disguise, eventually will fall all over
themselves to repeat each other's recommendations. We see that every day in the big name telecom stocks. Where were
the brokerage analysts when they could have recommended ten baggers? Waiting for someone else to go first! But once
the momentum gets underway, the rule of thumb is simply "don't fight the tape." (For several years, Morgan-Keegan
analyst,Rahm Kasargod, a specialist in the retail commerce sector, covered InterDigital at the behest of clients. He
suspended his coverage as the telecommunications technology field became too technically complex to be covered by an
analyst whose primary responsibility field included WalMart and other retail outlets. The media who have covered
InterDigital often have simply dragged out the same worn out comments uttered by supposed "experts" who, in reality,
had no clue what InterDigital has been doing in recent years, but chose to pontificate without the benefit of any current
knowledge. These has been comments are still being rsurrected in the media by some particularly lazy reporters.
Beware! With a cracker jack PR firm freshly on board for InterDigital, the Corporation should see much improved
media coverage.
6. The loss of a patent infringement case against Motorola in 1995 soured brokers. Since then, the Supreme
Court has changed the rules (Markman decision) for such litigation. Under the new rules, InterDigital probably would
have won easily. See: "Learning from the 1995 Motorola Case
7. Current management still feeling affects of "hype claims" years ago The media is now accustomed to the
constant barrage of PR from telecom tech developer Qualcomm's brilliant PR people. IDC, on the other hand, too often
modestly declines to "toot its own horn." Potential investors need to be aware that IDC's current attorney-heavy
management is likely still influenced by previous management's experience years ago of being sued by disgruntled
shareholders for excessive hype. Management went to the other extreme of being overly cautious with their claims. For
example, potential investors wonder why IDC management's projections of earnings are so conservative. It is because,
in recent years, management has not factored in earnings unless they've got them signed, sealed and delivered. They want
the contract in hand before upping their earnings forecast. They certainly will not be sued for hype, but potential investors
who are used to extravagant earnings projections by others (often accurate, by the way), are afraid that IDC won't have
the same earnings as the horn tooters. As investors better understand IDC's immense earnings potential for the first
decade of the new century, they will join the "smart money" people who have been busy accumulating IDC shares since
September, 1999.
Conclusion
For investors seeking to enter the rapidly expanding wideband wireless technology area, InterDigital may be one of very
few "ground floor" investment opportunities still remaining. Only since late November, 1999 has its value begun to be
recognized by the investment community. At a price of $19.00 per share, IDC's trailing price to earning ratio (PE) is only
37, while more widely followed telecom tech companies are now sporting PE's five or ten times higher. Added bonus:
(1) IDC's foundational patents for TDMA-GSM technology (which drives 85% of all digital cell phones worldwide
today) were revalidated by the U. S. Patent office in November, 1999; (2) IDC's claims to have technology, patents and
patents pending in ALL FIVE MODES of the new international standards for wireless; (3) a mountain of cash is in the
bank, and (4) IDC has major tax credits to offset future taxable earnings. (Also see: "Third Generation Standards for
Wireless," "Risk-Reward Ratio", "Earnings Risks", "Learning from the 1995 Motorola Case) |
