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Monday July 17, 2:00 pm Eastern Time
worldlyinvestor.com Region of the Day
Talk of the Town, but Going Down
William Valentine, Columnist
Valentine sifts through the message board and comes up with three companies you should avoid.
Lately I've been on a contrarian kick. It seems to me that there are very few contrarians around these days, and that makes me nervous about the state of the market. A good dose of pessimism must accompany any good bull run, and there isn't much right now.
So this week, instead of profiling a stock to buy, I'm forcing my contrarian instinct onto three popular, non-US stocks that I'll suggest avoiding (or short 'em at your own peril).
A contrarian develops insight from capturing what the crowd (some say ``herd''--their word, not mine) is doing, and then doing the opposite. Thanks to the Internet, we have round-the-clock, electronic access to consensus opinion by way of stock message boards, where multitudes log in to sound off.
With all due respect to the folks who whittle away the hours discussing stocks online, as a group, they're a good predictor of what not to buy. For by the time consensus has been reached about which stocks to buy, it's already discounted in the stock price or just plain wrong.
Using an LTTS (Less Than Totally Scientific) method, I sought to find the most popular non-US stocks. I visited the message boards of Silicon Investor, Raging Bull, Quicken.com, Yahoo! and Multex, and quickly learned that three stocks, more than any others, were all the rage in the message boards. Believing that this was probably hint enough that they should be avoided, I nevertheless dug into seeing if they are, in fact, stocks to stay away from. They are.
So, without further adieu, I bring you the three most important stocks to eschew:
Pacific Century CyberWorks (OTC ADR:PCCLF)
Pacific Century CyberWorks is a Hong Kong-based Internet company with grand aspirations. Their recently announced merger with Cable & Wireless HKT (NYSE:HKT - news) makes them Asia's second-largest Internet company.
Founded by 33-year-old Stanford alum Richard Li, Pacific Century is aligning itself along eight divisions: Broadband for consumers, broadband for business, data centers/Web hosting, IP backbone and satellite, mobile, fixed network services, ventures and a high-tech park called Cyberport. Not clear on what they're trying to be? Using your imagination, think of the combination of WorldCom (Nasdaq ADR:WCOM), ExciteatHome (Nasdaq:ATHM - news), CMGI (Nasdaq:CMGI - news), and Verio (Nasdaq:VRIO - news).
Currently, Pacific Century trades over the counter on the bulletin board in the US, making it an obscurity and hard to follow. From a peak in the mid-$4 range a few months back, the stock now trades at 2 1/32. Using its price on the market in Hong Kong ($16.10 HKD), it trades at 161 times earnings. This rich valuation pales in comparison with the overpaying for US Internet stocks. However, current hype over Pacific Century makes it a hands-off play for now.
WaveRider Communications (Nasdaq:WAVC - news)
WaveRider is a Canadian provider of fixed-wireless Internet access products. Their bridge/routers provide high-speed wireless connectivity for LAN-to-Internet and LAN-to-LAN applications, over distances up to ten miles. They use frequency-hopping and direct-sequence, spread-spectrum technology coupled with time division multiple access (TDMA) techniques and operate in the license-free 900 MHz and 2.4 GHz ISM frequency bands. <p> While earningless for the foreseeable future, based on revenue, it trades at a price-to-sales ratio of 420 -- an obscene premium by even US standards of overpaying for Internet stocks.
Like the previously mentioned stock, WaveRider had a period of rapid ascension from $2 to $14 between January and February--a gain of 500%--but has since slipped to 7 7/8. Maybe that's why there's so much discussion about it on the message boards.
Globalstar Telecommunications Ltd. (Nasdaq:GSTRF - news)
Globalstar is a satellite company organized from Bermuda. They own and operate a low-earth-orbit batch of 48 satellites. Using code division multiple access (CDMA) technology, they are attempting to roll out a digital-telecommunication service alternative to the more terrestrial options. The company is largely owned by rocket company Loral (NYSE:LOR - news) and Vodafone AirTouch (NYSE:VOD - news).
Bleeding money like a stuck pig, this stock has fallen from a peak of around $54 to $11. Having recently defaulted on certain of its loans, the long-term solvency and survivability of the company are being questioned. Comparisons with the other less-than-celestial satellite effort Iridium are inevitable. Unless bankruptcy and fallen angel plays are your game, you best stand back and watch to see if this satellite burns up on reentry.
William L. Valentine, CFA, is president of Valentine Ventures LLC, (www.valentineventures.com) an investment manager of global stocks for individual investors. |
