I thought that it would be interesting to re-read this Jan article. If you check the stocks mentioned, three are up more than 6 today, At least one has surpassed it's target price, most are better than their Jan price (Win was at 24 then). It seems only one out of the 12 stocks has lost significant value (January value) and it wasn't Win.
The tickers are followed by Jan price and target price.
Pickers Wax Worried After Big Years
By Randy Whitestone
January 23, 1998 2:13 PM PST
Inter@ctive Week
Could this be the year the piper shuffles up Wall and California streets, demanding to be paid? After three dreamy years for technology stocks and stocks in general, early 1998 has all the earmarks of a nightmarish slasher flick.
Picks that made sense in December 1997 are now more chancy. Many Internet stocks have been knocked down so much this month that they must scale cliffs of clay in order to get back to the starting line.
"The best pick this year may be the one that doesn't lose money," says veteran analyst Ulric Weil of Friedman Billings Ramsey & Co.
"This is looking like a grim year," adds Mary McCaffrey of BT Alex. Brown.
Still, there is reason for cheer: Five of the 12 picks are already ahead for 1998, including early leader Lernout & Hauspie Speech Products NV (www.lhs.com), which is up more than 50 percent to around $45 after news that Microsoft Corp. will integrate the Belgian company's voice recognition technology into the Windows CE 2.0 operating system for handheld and automotive PCs. But lest you hand the crown to Chartwell Investment Partners' Ed Antoian, who selected Lernout & Hauspie, remember that we have 11 months to go, and Lernout & Hauspie has traded as high as $58.44 and as low as $18.75 within the past nine months alone.
This is the fourth year we have assembled an informal panel of prognosticators to hear what the best brains in the business predict will be the coming year's best-performing stocks. Twice, America Online Inc. has emerged as the best pick, in 1995 and 1997, while 3Com Corp. led the pack in 1996. The panel has largely trailed marketwide averages, easy to do during a span in which the Inter@ctive Week @Net Index of Internet stocks recorded an average gain of 25.2 percent, and the Nasdaq Combined Composite rose, on average, 28.1 percent.
But since 1995, euphoria has in some sense trailed reason. The more volatile, smaller @Net, which rose 64.3 percent in 1995 vs. 39.9 percent for the Nasdaq, has trailed the broader index for the past two years. Internet stock picking, with all its built-in difficulties in a nascent industry, has proved even more difficult as brand-name winners like Amazon.com Inc. and Yahoo! Inc. outdistance competitors adjudged more sluggish.
That may be why some of this year's picks look like moon shots and others like $2 bets at a slow blackjack table. (Speaking of $2, this year we instituted a rule that no stock can be trading below $2 to prevent a win by a thinly traded penny stock.)
The range of picks reflects the diversity of analysts polled: We tried to include money managers and analysts who track online media, data networking and electronic commerce. AOL (www.aol.com) remains the only company picked by at least one panelist every year.
Michael Parekh of Goldman Sachs Group LP sees AOL's shares rising nearly 40 percent to $125 within 12 to 18 months -- this after those shares nearly tripled last year from $33.25 to $90.50. AOL has firmly established its brand, Parekh says, and can now leverage that brand in building new revenue streams.
"It's the leading Internet-online services provider with growth in subscribers, and more importantly, advertising and e-commerce dollars," Parekh says. "They also have growing earnings momentum as a result of these ad and commerce revenue streams."
Without accounting for the pending acquisition of CompuServe Corp., Parekh projects companywide revenue of $2.4 billion for AOL in the fiscal year ending June 30, 1998, up 43 percent. More than 19 percent of that fiscal 1998 total, or $460 million, will stem from "other" businesses, the bulk of which is advertising and commerce, he says. The "other" line accounted for less than 15 percent of revenue in fiscal 1997.
Parekh also projects earnings per share of 88 cents in 1998 and $1.50 in 1999 -- vs. a loss of 28 cents in 1997, and says membership could grow to nearly 15 million by midyear after the CompuServe acquisition, vs. 8.6 million in mid-1997.
McCaffrey picked Adobe Systems Inc. (www.adobe.com), because the developer of publishing, digital imaging, Web authoring and information management software is entering a new product cycle that, in the traditional view of the software market, could goose earnings and share price. The company also put in place cost controls and reshuffled management after earnings rose only 14 percent in the fourth quarter of its fiscal year ended Nov. 28, 1997.
PaineWebber Inc.'s Jim Preissler is enamored of Network Solutions Inc. (www.netsol.com), the domain name registry company that went public in September 1997 at $18 per share and has since seen shares drop to around $16 amid concerns it will lose its government contractor status.
"People don't believe the franchise is going to be retained," Preissler says. "If it does keep it, there is tremendous upside, and, in any case, they have recognized that there is going to be competition anyway."
NSI has a big lead in the number of names registered, is profitable and can use those two factors as a competitive weapon and a means of building new services and consulting lines of business, Preissler says. "They can leverage their 'cash cow' business," he says.
Winstar Communications Inc. (www.winstar.com), the alternate telecommunications provider focused on 38-gigahertz voice and data access, recently acquired Internet services provider (ISP) GoodNet and was once a part owner of ISP Digex Inc. Samuel May of Pacific Growth Equities thinks Winstar can nearly double in price to $45 based on its cash flow and the valuations accorded similar competitive local exchange carriers (CLECs), such as Teligent Inc.
"Winstar has more spectrum than any other [CLEC] and has been consolidating and buying up smaller companies," he says, noting that the second anniversary of the February 1996 federal telecom reform bill means competitive positions are starting to settle into more stable patterns. Winstar's digital access strategy "hits its stride in 1998," he adds, noting that the company is a sensible acquisition target for one of the regional Bell operating companies, especially since the AT&T Corp. agreement to buy Teleport Communications Group Inc. for $11.3 billion makes Winstar's $1 billion market value seem bite-size affordable.
George Kelly of Morgan Stanley says MMC Networks Inc. (www.mmcnetworks.com) builds a general-purpose network processor that can be used as a core component in packet switches built by companies such as 3Com and Cisco Systems Inc. MMC, which went public in late October 1997 in a $38.5 million deal underwritten by Morgan, has not disclosed any customer names, but Kelly says its patented architecture should help boost earnings from $600,000 in 1997 to $8 million in 1998.
Speaking of Cisco (www.cisco.com), Eric Blachno of Bear, Stearns & Co. says it's still the networking kingpin, the "provider of choice to the corporate market" and has made some inroads into the service provider market. A raft of new switching, routing and remote access products should help boost earnings, adjusted for a stock split, from $1.77 per share in the year ending July 1998 to $2.20 in the year ending July 1999, Blachno says.
According to Weil of Friedman Billings Ramsey, UOL Publishing Inc. (www.uol.com) can learn from an earnings "hiccup" in the third quarter of 1997 and focus on management execution, building a presence in the online education and training market.
Hambrecht & Quist LLP's Genni Combes says Intuit Inc. (www.intuit.com) will start to widen its lead in the Internet financial services space in late 1998, adding insurance and mortgage products as well as more sophisticated online tax products. Steve Horen of NationsBanc Montgomery likes TMP Worldwide Inc.'s (www.tmpw.com) strong presence in the online recruitment market and general classified advertising market.
Meanwhile, Bill Burnham of Piper Jaffray says Cylink Corp. (www.cylink.com) has an opportunity in providing information security applications for Internet Protocol remote access products.
'Inter@ctive Week' 1998 Stock-Picking Contest
Analyst Firm Stock Pick Price Symbol 12-month 12/31/97 Target Price
Ed Antoian Chartwell Investment Partners Lernout & Hauspie LHSPF $29.75 $60.00
Keith Benjamin BancAmerica Robertson Stephens SportsLine USA Inc. SPLN 10.75 25.00
Eric Blachno Bear, Stearns & Co . Cisco Systems Inc. CSCO 55.75 75.00
Bill Burnham Piper Jaffray Cylink Corp. CYLK 9.75 15.50
Genni Combes Hambrecht & Quist Intuit Inc. INTU 41.25 55.00
Steve Horen Nationsbanc Montgomery TMP Worldwide Inc. TMPW 23.00 32.00
George Kelly Morgan Stanley MMC Networks Inc. MMCN 17.00 28.00
Samuel May Pacific Growth Equities WinStar Communications Inc. WCII 24.94 45.00
Mary McCaffrey BT Alex. Brown Adobe Systems Inc. ADBE 41.25 53.00
Michael Parekh Goldman Sachs America Online Inc. AOL 90.50 125.00
Jim Preissler PaineWebber Network Solutions Inc. NSOL 13.13 35.00
Ulric Weil Friedman Billings Ramsey & Co. UOL Publishing Inc. UOLP 16.50 30.00 |
