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

To: Doug who wrote (3781)	3/8/1998 9:52:00 AM
From: Otimer	Read Replies (3) \| Respond to of 4429

FYI- Company Facts 3-Year Chart Overview Earnings Estimates Details Company Facts 3-Year Chart Overview Earnings Estimates I suspect that we will see some consolidation soon, probably beginning in about a week. Major technology-laden indices have made strong moves and greed will begin to settle down. But over the next few months, the trend will remain biased to the upside. I have never been the sort of investor to get caught up in the heat of the moment. Friends jokingly call me a "vulture capitalist" -- ready and willing to dive on equities when Wall Street's thundering herd romps elsewhere. But after a consolidation period, given my view that the techs have more to run in the near-term -- and since I've got the cash! -- it's shopping time. As I fill in this portfolio, my shopping list will likely change a bit as the next four weeks unfold. Volatility will create opportunities. But for now, here's the quick skinny on the trades I'm going to make Friday and the honor roll for limit orders: DSC Communications (DIGI) is one of the remaining "blue-light" specials in technology. Telecommunications equipment providers have seen their stocks roar this month. Quite a different picture versus the trading only a few weeks ago. When ADC Telecommunications (ADCT) served-up a profit warning, citing a sluggish investment environment among the Bell local telephone service providers, fear ran through investors holding shares of companies throughout the sector -- as if they didn't have enough worries over slowing demand in Asia. Telecom equipment providers like Tellabs (TLAB) and Advanced Fiber Communications (AFCI) served-up a positive outlook on equipment investment at this week's TECH'98 conference, topping off a month that has seen investors stampeding back into this industry segment. But interestingly enough, DSC has unjustifiably lagged the group move. A story this week in the Wall Street Journal contributed to DSC's weakness. Noting the troubles Motorola (MOT) has had with its wireless strategy, and in particular, the loss of a $500 million contract with PCS PrimeCo., the article referred to DSC's switching systems as "vastly less powerful" than competitive offerings from Lucent (LU). The quip was off the mark, as Motorola's problems have more to do with its integration of software powering wireless base station controllers and not DSC's switches. Ironically enough, DSC announced an independent PCS PrimeCo order for switching systems last Monday, which suggests PCS PrimeCo doesn't have a beef with DSC. In a research note this week, Tim Savageaux, BancAmerica Robertson Stephens' broadband telecommunications analyst, went as far as to say the WSJ remark was "misleading, at best." It appears TECH'98 goers began to take this view to heart; the stock rocketed back into the $20s yesterday. DSC is not growing as fast as many of its telecom equipment peers, largely the product of the mix of their target market segments. For example, in "access" digital loop carrier (DLC) systems, the company specializes in systems that integrate large numbers of lines for telephone service. This is a solid market to serve and DSC is a leading vendor. But out in the suburbs, smaller line access DLCs have proven to be an explosive market; witness Advanced Fiber Communication's growth. Calling a spade a spade, though, DSC is a fantastic value at the current quote. A quick review of historical measures such as price to sales, price to book and price to earnings demonstrate this. Pull up a Zacks report on Investor or run the numbers; they literally speak for themselves, as the stock is near the bottom end of its historical valuation measures while the company's sales continue to improve. By the time this portfolio beta comes to a close next month, I would not be surprised to see the stock trading over 23, and conservatively, I expect the price to earnings multiple to trend toward 20 times earnings per share (at least) later this year. I believe the stock will easily hit 25 this year.