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To: straight life who wrote (21102)	1/10/1999 4:57:00 PM
From: Ruffian	Respond to of 152472

Telecom Perspective> ity: Should you join the January buying rush? The Diary of a Private Investor The Daily Telegraph London How do you rationalise the money piling into stocks amid an economic slowdown? January often sees a liquidity driven rally by institutions flush with cash. There is excitement about telecoms and automotive mergers, also exuberance over the euro. But remember that the market rocketed when Britain joined the European exchange rate mechanism in 1989! We are between a rock and a hard place on monetary union. If we join we cede control of our financial destiny; stay out and we lose influence in Europe. In investment terms it is fair to be sceptical about an harmonious union - just look at Europe's history - but business broadly favours the trend towards a single market. As an Englishman I shudder; as an investor I know I must take it seriously. Prospects for the London market look sound - amid a consensus of low inflation, interest rates falling to 5 per cent by the year-end, the economy slowing but not dramatically. A reported fall in workload for the service sector needs monitoring and retailers' trading statements are sluggish. But notice how stock-picking can still pay in a negative sector: Arcadia, Debenhams and House of Fraser are said to have had a poor Christmas, yet Clinton Cards and Electronics Boutique reported strong trading. The Bank of England must be concerned about inflationary prospects should sterling fall against the euro, so I think its fourth successive cut in interest rates is partly a response to international risks. On Thursday one Brazilian state declared a 90- day moratorium on debt payments; others could follow. Wall Street and the American economy remain the biggest issue. With an historic price-earnings ratio of about 38, this market's valuation cannot be rationalised according to corporate earnings prospects. Strong growth in money supply has helped to boost stocks - yet last October the Federal Reserve Board was expected to show global leadership with interest rate cuts. It is hard to say how the impeachment of President Clinton might affect consumer and business confidence - but it won't help. With luck, lower expectations could reduce overheating in the US economy; a 10 per cent stockmarket correction would also be healthy. Weighing all this I am reasonably confident - if disinclined to back the initial excitement with a call option on the FTSE100 Index. Telecom stocks continue to ring up impressive gains after the pre- Christmas boom in mobile phone sales - and Vodafone's pounds 33bn merger proposal with AirTouch of the US. Besides Orange, indirect beneficiaries are BT (which owns a major stake in Cellnet) and Cable & Wireless (which owns half of One-2-One). Spotting powerful waves then buying a clutch of stocks is smart investing. Last year I noted how Bayard Partners identified mobile telephony, information technology and eating out for an 86.3 per cent gain last year, the world's top hedge fund. Many investors cannot rationalise telecom valuations, but commercial waves like this crash through historic analysis. Don't kick out yet; global prospects for mobile telephony are huge. Look at Scandinavia, a model for where UK telecoms could be in three years' time. Market penetration has reached 150 per cent; the most popular Christmas present for a child was a mobile phone. By contrast, just 20 per cent of the UK population owns a mobile phone. Nokia is a Finnish blue chip stock to buy as a core holding - so pester your broker for information and dealing. As the market leader, Nokia has many new technologies - including language translation as you speak. At a distance I have followed Filtronic, which designs microwave devices for cellular and cable telecoms. The investment thesis changes rapidly; after flotation, I noticed Filtronic soar from 170p to above 500p in 1995 - only to slump to 178p by November 1996 after US customers deferred orders. I decided to wait for sales evidence - but the stock re-rated over 500p before they were disclosed. Sometimes customers exact confidentiality and after a disappointment Filtronic probably wanted to keep its head down. It is highly geared and needs careful assessment; its stock can move on the back of City presentations, like from 383p to 600p late last year. I tend to lose patience chasing the truth in such situations - but Filtronic was an early contender for my share of the year. Avoid complex broker reviews and obtain a useful, timely study that appeared last November in Sharewatch (tel: 0181 656 4648). Filtronic is now 656.5p after last week's positive news on the sector and interims are due on January 25. However, I am not qualified to offer a definitive view. Radstone Technology was also in the frame as share of the year. The group is a leading designer of rugged computer sub-systems with military applications. Now 64.5p, the shares are in a tight market of 1,000; likely earnings of 6.5p for the year to end-March 1999 will benefit from a tax charge about 15 per cent after losses in 1996-97. But prospects for sustainable recovery are good and Radstone's pounds 13.7m market value barely approaches a sum-of-the-parts. On Tuesday a $4m contract was announced to refit the US army's rocket launching systems. The technology is in service with several European armies, including Britain's, and was recently in action in the Gulf. Radstone is well worth investigating; I shall forgo market- makers another New Year bonus by not asserting "buy". Watch for an opportunity when their spirits are down! Among likely takeovers, engineer BWI rose 22p to 69.5p after it said it had received several bid approaches including one from management. With the prospect of sterling weakening, the time is ripe for engineering bids. Last Sunday I cited Servomex, a manufacturer of gas analysis equipment, as a target. Profit warnings blitzed the stock from 373p to 95.5p last year, but I think Servomex's technology has a proprietary value higher than the market is willing to respect. Four directors bought 56,850 shares at 270p in June. The finance director bought 20,000 and a colleague 8,500 - at 120p on December 30, just before the closed period. I was sceptical about a rumour that Servomex had been approached by [ City Technology ] - in gas sensors, which is not quite the same. Servomex soared above 150p on Tuesday before the company denied it was in talks. At 124p perhaps prospects need to improve; study the prelims in March. I also noted prospects for a higher take-out price at Wace, the imaging and printing services group subject to a hostile bid from Photobition. A cash offer of 50p looks mean; the paper alternative is currently 21.93 Photobition shares for 100 Wace. Wace has edged up from 58p to 63p; buying now is a close decision, but shareholders should hold firm. Packaging group Field was subject to a rumour; the stock rose from 180p to 230p (now 226.5p) after a 146p low in October. I cited Field as a bid target last year; any offer price would be at least 320p. Who knows what who knows? You can go blue in the face chasing speculation; I put better colour in my cheeks cycling into a splendid sunset! (Copyright 1999 (c) The Telegraph plc, London) _____via IntellX_____