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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: Andreas who wrote (84825)	9/20/2000 3:57:37 PM
From: Piotr Koziol	Read Replies (1) \| Respond to of 97611

Andreas, "not to worry", here's a nice vote for CPQ: Wednesday September 20, 3:30 pm Eastern Time Sector of the Day: Time to Come Back to Compaq Glenn S. Curtis, Columnist The old hand of the computer industry is still a solid play. Insiders have been buying on the upswing. Looking for a veteran tech highflier that's been up and down and bumped and bruised but will stay on course? Look no further than Compaq (NYSE:CPQ - news). Compaq just a couple of years ago was a must-have in any portfolio. But the good times didn't last. Stiff competition and slimming margins led to a shortfall in earnings. And predictably, investors bailed. But now, like a pendulum, momentum has started to shift back. And over the long haul, investors in this maker of computer hardware should make out just fine. As opposed to just being a plain ol' maker of desktops, Compaq is successfully defining itself as a one-stop shop in terms of hardware solutions. Sure the company makes PCs. But it also makes a line of servers, printers, projectors, networking products and notebooks. All Hands on Deck Compaq is also at the forefront of hand-held computing technology. Its IpaqPocket PC for example, is a palm-sized device that provides Internet access, as well as e-mail capabilities, word, and excel. It competes favorably in a head-to-head comparison with Palm's (Nasdaq:PALM - news) Palm V. But the point here is that Compaq is more than just a box maker. And it will continue to grow as long as individuals and businesses use computer hardware and the Internet as a means of communication or as a median for business transactions. The second quarter was a turning point in terms of rebuilding investor confidence. Compaq earned 21 cents a share from operations in the period ended June 30; this was up sharply from the 10-cent loss the company posted a year ago. Revenue for the quarter rose 7.4% to $10.1 billion. More importantly, a better product mix and a close eye on expenses allowed for margin expansion during the quarter. Gross margins improved by more than 300 basis points to 23.6%. At the same time, operating expenses dropped 17% to $1.8 billion. Not too shabby. Insiders and Institutions Insiders haven't been buying the stock lately, but were big buyers in late 1999 when the shares were in the mid to low $20s. Compaq Chairman Benjamin Rosen and President Michael Capellas own more than 6.4 million common shares collectively. This is in addition to the boatload of options that each of these executives has as part of his compensation agreement. To that end, I can say with certainty that management certainly has an incentive to maximize shareholder value. Institutions have also been paying keen attention to Compaq as of late. Money managers purchased more than 64 million shares during the second quarter, even though the stock had rebounded into the mid to high $20s. Fidelity bought 20.5 million shares during the period, bringing its total ownership to roughly 62 million shares, or 3.42% of the outstanding common shares. Barclay's Global Investors purchased 4.4 million shares in the second quarter, bringing its total holdings to more than 50.2 million shares, or 2.96% of the Compaq's shares outstanding. Other big buyers included Merrill Lynch and Jennison Associates, a New York-based investment advisor and subsidiary of Prudential Insurance. The mere fact that these smart-money players continue to buy the stock despite its run up over the past few months is a great sign that even better times lie ahead. Keeping Its Balance That said, Compaq is not out of the woods yet. Strong competition from the likes of Dell (Nasdaq:DELL - news), Gateway (NYSE:GTW - news) and Palm as well as other formidable hardware makers could certainly put a damper on things. Moreover, in the near-term, some believe that a shortage of memory chips could impact sales. But considering that the market for Internet devices is expected to grow from 65 million units in 2000 to more than 190 million units by 2003, and that 45% of Internet users will have more than one means of connecting to the Web over the next few years (based upon industry trends), companies like Compaq are very well-positioned to reap the growth. Compaq has a solid balance sheet with more than $2.6 billion in cash. Operating cash flow is also strong and should more than adequately provide the means for Compaq to grow its business. Consensus estimates have Compaq earning $1.07 and $1.49 a share in 2000 and 2001, respectively. Applying a reasonable multiple of 30 times 2001 estimates, I think Compaq is a $40 stock in the next 12 to 24 months. Glenn Curtis is an analyst for worldlyinvestor.com. Prior to working at worldlyinvestor.com, he was an analyst at InsiderTrader.com, a financial Web site, and at Cantone Research, a brokerage firm in central New Jersey. Curtis is series 6, 7, 24, and 63 licensed. He does not hold a position in any of the companies mentioned. Positions can change at any time. Go to www.worldlyinvestor.com to see all of our latest stories.