EMLX,JDSU......................
Alpha Analytics's Michael Cohen Picks Five Stocks to Grease the
Technology Bottleneck
By Mary Gooderham (mgooder@aol.com)
Friday, March 30
Washington, DC -- When Michael
Cohen opened the Alpha Analytics
Digital Futures Fund in December
1999, the idea was to start small.
He'd do some research on the
long-term outlook in the Silicon Valley
where he's located, slowly start
investing, and build a track record. But within a month, Cohen and
co-manager John Gipson were riding high on what seemed an
unlimited rally of tech stocks and supply of capital. Alpha Analytics
was rated the #1 performing specialty tech fund by Morningstar Inc. in
the first quarter of 2000 and among the top 10% for the year. All of
that has come crashing down with a drop of about 45% in the year to
date, but Cohen is sanguine. "Now we're back to our original plan," he
says. "We're in it for the long run."
Cohen expects the markets to follow a
sideways pattern over the next six to 12
months, especially until the bottom of the
earnings slowdown becomes clear. "If your
time horizon is five years or greater this is a
good time to invest," Michael Cohen says.
"If it's less than three years, you shouldn't
be in equities at all."
Cohen says his fund was especially hurt by
companies putting off large capital projects
like the fiber-optic and network storage
build-outs he'd been banking on. Those will
eventually happen he says. "Companies
still have to make technology upgrades." But volatility will rule in the
meantime.
He seeks out technology bottlenecks and then tries to find firms that
are building new systems or applications to eliminate them. "A
bottleneck is a place for investors to focus on, because there's a need
there," says Cohen, who picks five such equities for StockHouse
readers:
Emulex Corp. [EMLX]
The storage sector is hot, with most large computer systems
switching over from storage devices directly attached to
servers to equipment that works across networks to hold and
provide access to electronic data and applications. The
Emulex model is focused on using a fibre channel to string
together storage devices on its own network. The company
also plans to offer another solution by directly attaching to the
network and a dedicated server. Emulex's shares were hit hard
by the pullback of major orders. "The trend towards such
storage is inevitable," Cohen says. "The only issue is the
timing."
Newport Corp. [NEWP]
Started as a testing and measurement company for fiber optic
components, Newport has quickly become a global supplier of
automation systems that allow manufacturers to speed up the
production of optics, semiconductor capital equipment,
aerospace, and other high-precision products. From a 52-week
high of $192, the shares closed Thursday at $29.40. But
Cohen thinks that the need for automation, some strategic
acquisitions of firms and improved techniques will move
Newport ahead by light years. "Companies making fiber optic
components are constrained by manufacturing capacity, not
demand, and speeding up the process will certainly help,"
Cohen says.
Optical Communications [OCPI]
This company designs and manufactures a line of fibre-optic
based telecommunications hardware especially for
metropolitan area and high-speed corporate access networks.
These transmitters, receivers, transceivers, and transponders
are designed to carry the greater bandwidths these customers
need. Cohen says the metro area and access markets are
relatively untapped and Optical is poised to fill the gap. "These
have been the bottleneck in the whole system," he says.
JDS Uniphase Corp. [JDSU]
A provider of the advanced fibre optic
components and modules that are
the basic building blocks for fiber
optic networks, Cohen likes the fact
that this company, formed from the
1999 merger of JDS FITEL and
Uniphase, is ramping up production.
It has acquired a slew of
complementary companies and
rivals to expand its product line and
market. It dropped from a 52-week
high of $140 to $17.50 on Thursday, but Cohen's not
concerned. "There's not a tech company that I can think of
that's making new highs," Cohen says. "We're in a
technological revolution, but we're also in a big earnings
slowdown."
Rambus Inc. [RMBS]
"This stock's not for the faint of heart," Cohen says, but
Rambus comes with a good story and a potential for big
earnings. In the 1990s, the company came out with high-speed
interface to enhance the performance and cost effectiveness of
computers and electronics. Licensed for use in a wide variety
of products, the technology called Rambus dynamic
random-access memory (RDRAM), addresses a bottleneck of
another sort --accelerating the exchange of signals between
the computer's processor and memory. However, charges are
flying between Rambus and makers of competing memory chip
designs over the rights to the design, and Rambus is both a
plaintiff and a defendant in three upcoming lawsuits. Cohen
says the $20.70 price of the stock reflects concerns that the
first of the lawsuits, in April, will go against Rambus, but he
believes the company has a good chance of coming out on top
in the long run.
Despite what he considers good investing opportunities in solid
companies, new money in Cohen's fund slowed to a trickle following
his debut year, because most people are momentum-oriented at
heart. "I wish that investors were a little more contrarian-oriented," he
says. "When tech was sky-high last March, people were throwing
money at you. Now that it's low they don't want to invest." |
